UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended November 30,May 31, 20212022

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from ______ to ______

Commission File No. 1-13146

THE GREENBRIER COMPANIES, INC.

(Exact name of registrant as specified in its charter)

Oregon

93-0816972

(State of Incorporation)

(I.R.S. Employer Identification No.)

One Centerpointe Drive, Suite 200, Lake Oswego, OR

97035

(Address of principal executive offices)

(Zip Code)

(503) 684-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock without par value

GBX

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No

The number of shares of the registrant’s common stock, without par value, outstanding on December 31, 2021July 5, 2022 was 32,546,11332,587,686 shares.


FORM 10-Q

Table of Contents

Page

Forward-Looking Statements

3

PART I.

FINANCIAL INFORMATION

4

   Item 1.

Condensed Financial Statements

4

Condensed Consolidated Balance Sheets

4

Condensed Consolidated Statements of OperationsIncome

5

Condensed Consolidated Statements of Comprehensive Income (Loss)

6

Condensed Consolidated Statements of Equity

7

Condensed Consolidated Statements of Cash Flows

89

Notes to Condensed Consolidated Financial Statements

910

   Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2427

   Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3748

   Item 4.

Controls and Procedures

3848

PART II.

OTHER INFORMATION

3949

   Item 1.

Legal Proceedings

3949

   Item 1A.

Risk Factors

3949

   Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

4050

   Item 6.

Exhibits

4051

Signatures

4152


Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events and include any statement that does not relate to any historical or current fact. We use words such as “anticipates,” “believes,” “can,” “could,” “designed to,” “estimates,” “expects,” “foresee,” “future,” “intends,” “likely,” “may,” “potential,” “trend,” “seeks,” “should,” “strategy,” “will,” “would,” and similar expressions to identify forward-looking statements. Forward-looking statements are not guarantees of future performance.

Forward-looking statements are based on currently available operating, financial and market information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to:

the COVID-19 coronavirus pandemic, the governmental reaction to COVID-19 and the related significant global volatility in general economic activity as more fully described in Part II Item 1A “Risk Factors” of thisthe Quarterly Report on Form 10-Q; of the Company for the quarter ended November 30, 2021 and filed with the Commission on January 7, 2022;
we may be prevented from operating our manufacturing facilities, maintenance shops, wheel shops or other worksites due to the illness of our employees, “stay-at-home” regulations, and employee reluctance to appear for work for many different reasons including the implementation of any government-imposed vaccination or testing mandates;
impacts from any international conflicts or other geopolitical events, including the current conflict between Russia and Ukraine;
general inflation, including wage inflation currency volatility as well as and a rise in energy prices;
monetary fiscal and other policy interventions in anticipationby governments and central banks aimed at decreasing aggregate demand, including the increase of or reaction to such events, including increases in interest rates;
a sustained decrease in, or uncertainty about, aggregate demand;
mismatch of supply and demand, interruptions of supply lines, inefficient or overloaded logistics platforms, among other factors may cause the markets for the inputs to our business to fail to operate effectively or efficiently (including sectoral price inflation);
price volatility for supplies to our business as well as goods and services in our industry;
changes in our product mix or revenue due to shifts in demand;
the cyclical nature of our business;
equipment failures, technological failures, costs and inefficiencies associated with changing of production lines, or transfer of production between facilities;
changes in demand for our railcar equipment and services;
our ability to realize the anticipated benefits of our new leasing strategy;
a decline in performance, or increase in efficiency, of the rail freight industry;
risks related to our operations outside of the United States (U.S.) including enforcement actions by regulators related to tax, environmental, labor, safety, or other regulations;
governmental policy changes impacting international trade and corporate tax;
the loss of, or reduction of, business from one or more of our limited number of customers;
a material delay in the movement of our products to customer delivery points; and
our inability to lease railcars at satisfactory rates, remarket leased railcars on favorable terms upon lease termination, or realize the expected residual values for end of life railcars due to changes in scrap prices.

The foregoing risks are described in more detail in Part I Item 1A “Risk Factors” in our most recent Annual Report on Form 10-K and our subsequent Quarterly Reports on Form 10-Q which are incorporated herein by reference. You are cautioned not to place undue reliance on any forward-looking statements, which reflect management’s opinions only as of the date hereof. Except as otherwise required by law, we do not assume any obligation to update any forward-looking statements. All references to years refer to the fiscal years ended August 31st31st unless otherwise noted.

3


PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Condensed Consolidated Balance Sheets

(In millions, except number of shares which are reflected in thousands, unaudited)

 

November 30,
2021

 

 

August 31,
2021

 

 

May 31,
2022

 

 

August 31,
2021

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

410.8

 

$

646.8

 

 

$

449.7

 

 

$

646.8

 

Restricted cash

 

27.1

 

24.6

 

 

 

16.1

 

 

 

24.6

 

Accounts receivable, net

 

393.3

 

306.4

 

 

 

464.8

 

 

 

306.4

 

Income tax receivable

 

106.2

 

112.1

 

 

 

129.4

 

 

 

112.1

 

Inventories

 

631.4

 

573.6

 

 

 

781.7

 

 

 

573.6

 

Leased railcars for syndication

 

99.1

 

51.6

 

 

 

142.9

 

 

 

51.6

 

Equipment on operating leases, net

 

751.3

 

609.8

 

 

 

676.1

 

 

 

609.8

 

Property, plant and equipment, net

 

654.4

 

670.2

 

 

 

642.7

 

 

 

670.2

 

Investment in unconsolidated affiliates

 

83.1

 

79.9

 

 

 

96.2

 

 

 

79.9

 

Intangibles and other assets, net

 

183.0

 

183.6

 

 

 

177.8

 

 

 

183.6

 

Goodwill

 

 

130.3

 

 

132.1

 

 

 

128.7

 

 

 

132.1

 

 

$

3,470.0

 

$

3,390.7

 

 

$

3,706.1

 

 

$

3,390.7

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

 

 

 

Revolving notes

 

$

516.3

 

$

372.2

 

 

$

303.3

 

 

$

372.2

 

Accounts payable and accrued liabilities

 

540.4

 

569.8

 

 

 

639.0

 

 

 

569.8

 

Deferred income taxes

 

51.3

 

73.3

 

 

 

72.9

 

 

 

73.3

 

Deferred revenue

 

36.6

 

42.8

 

 

 

33.3

 

 

 

42.8

 

Notes payable, net

 

895.7

 

826.5

 

 

 

1,202.6

 

 

 

826.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingently redeemable noncontrolling interest

 

29.7

 

29.7

 

 

 

27.8

 

 

 

29.7

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

Greenbrier

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock - without par value; 25,000 shares
authorized;
NaN outstanding

 

 

 

 

 

 

 

 

 

Common stock - without par value; 50,000 shares
authorized;
32,546 and 32,397 shares outstanding at
November 30, 2021 and August 31, 2021

 

 

 

Common stock - without par value; 50,000 shares
authorized;
32,588 and 32,397 shares outstanding at
May 31, 2022 and August 31, 2021

 

 

 

 

 

 

Additional paid-in capital

 

408.5

 

469.7

 

 

 

420.5

 

 

 

469.7

 

Retained earnings

 

888.7

 

881.7

 

 

 

886.5

 

 

 

881.7

 

Accumulated other comprehensive loss

 

 

(59.9

)

 

 

(43.7

)

 

 

(36.6

)

 

 

(43.7

)

Total equity – Greenbrier

 

1,237.3

 

1,307.7

 

 

 

1,270.4

 

 

 

1,307.7

 

Noncontrolling interest

 

 

162.7

 

 

168.7

 

 

 

156.8

 

 

 

168.7

 

Total equity

 

 

1,400.0

 

 

1,476.4

 

 

 

1,427.2

 

 

 

1,476.4

 

 

$

3,470.0

 

$

3,390.7

 

 

$

3,706.1

 

 

$

3,390.7

 

The accompanying notes are an integral part of these financial statements

4


Condensed Consolidated Statements of OperationsIncome

(In millions, except number of shares which are reflected in thousands and per share amounts, unaudited)

 

Three Months Ended
November 30,

 

 

Three Months Ended
May 31,

 

 

Nine Months Ended
May 31,

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Manufacturing

 

$

452.5

 

$

304.5

 

 

$

650.9

 

 

$

339.7

 

 

$

1,659.1

 

 

$

845.7

 

Maintenance Services

 

72.4

 

65.6

 

 

 

101.5

 

 

 

80.9

 

 

 

260.5

 

 

 

218.1

 

Leasing & Management Services

 

 

25.8

 

 

32.9

 

 

 

41.1

 

 

 

29.6

 

 

 

107.4

 

 

 

85.0

 

 

550.7

 

403.0

 

 

 

793.5

 

 

 

450.2

 

 

 

2,027.0

 

 

 

1,148.8

 

Cost of revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Manufacturing

 

421.6

 

280.9

 

 

 

611.3

 

 

 

292.4

 

 

 

1,567.9

 

 

 

775.1

 

Maintenance Services

 

71.2

 

63.0

 

 

 

91.1

 

 

 

73.7

 

 

 

244.0

 

 

 

203.4

 

Leasing & Management Services

 

 

10.3

 

 

18.4

 

 

 

14.8

 

 

 

8.9

 

 

 

36.4

 

 

 

36.8

 

 

503.1

 

362.3

 

 

 

717.2

 

 

 

375.0

 

 

 

1,848.3

 

 

 

1,015.3

 

Margin

 

47.6

 

40.7

 

 

 

76.3

 

 

 

75.2

 

 

 

178.7

 

 

 

133.5

 

Selling and administrative expense

 

44.3

 

43.7

 

 

 

57.4

 

 

 

49.3

 

 

 

156.4

 

 

 

136.4

 

Net gain on disposition of equipment

 

 

(8.5

)

 

 

(0.9

)

Net (gain) loss on disposition of equipment

 

 

(0.7

)

 

 

0.2

 

 

 

(34.3

)

 

 

(0.8

)

Earnings (loss) from operations

 

11.8

 

(2.1

)

 

 

19.6

 

 

 

25.7

 

 

 

56.6

 

 

 

(2.1

)

Other costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and foreign exchange

 

 

12.6

 

 

11.1

 

 

 

14.9

 

 

 

10.2

 

 

 

39.3

 

 

 

30.9

 

Loss before income tax and earnings (loss)
from unconsolidated affiliates

 

(0.8

)

 

(13.2

)

Income tax benefit

 

 

1.4

 

 

7.3

 

Earnings (loss) before earnings (loss) from
unconsolidated affiliates

 

0.6

 

(5.9

)

Earnings (loss) from unconsolidated affiliates

 

 

5.0

 

 

(0.8

)

Net loss on extinguishment of debt

 

 

 

 

 

4.8

 

 

 

 

 

 

4.8

 

Earnings (loss) before income tax and earnings
from unconsolidated affiliates

 

 

4.7

 

 

 

10.7

 

 

 

17.3

 

 

 

(37.8

)

Income tax (expense) benefit

 

 

(1.1

)

 

 

6.9

 

 

 

(2.9

)

 

 

36.0

 

Earnings (loss) before earnings from
unconsolidated affiliates

 

 

3.6

 

 

 

17.6

 

 

 

14.4

 

 

 

(1.8

)

Earnings from unconsolidated affiliates

 

 

4.0

 

 

 

2.4

 

 

 

10.0

 

 

 

1.3

 

Net earnings (loss)

 

5.6

 

(6.7

)

 

 

7.6

 

 

 

20.0

 

 

 

24.4

 

 

 

(0.5

)

Net (earnings) loss attributable to noncontrolling interest

 

 

5.2

 

 

(3.3

)

 

 

(4.5

)

 

 

(0.3

)

 

 

2.3

 

 

 

1.2

 

Net earnings (loss) attributable to Greenbrier

 

$

10.8

 

$

(10.0

)

Basic earnings (loss) per common share

 

$

0.33

 

$

(0.30

)

Diluted earnings (loss) per common share

 

$

0.32

 

$

(0.30

)

Net earnings attributable to Greenbrier

 

$

3.1

 

 

$

19.7

 

 

$

26.7

 

 

$

0.7

 

Basic earnings per common share

 

$

0.10

 

 

$

0.61

 

 

$

0.82

 

 

$

0.02

 

Diluted earnings per common share

 

$

0.09

 

 

$

0.59

 

 

$

0.79

 

 

$

0.02

 

Weighted average common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

32,510

 

32,723

 

 

 

32,588

 

 

 

32,573

 

 

 

32,560

 

 

 

32,726

 

Diluted

 

33,570

 

32,723

 

 

 

33,661

 

 

 

33,605

 

 

 

33,626

 

 

 

33,747

 

The accompanying notes are an integral part of these financial statements

5


Condensed Consolidated Statements of Comprehensive Income (Loss)

(In millions, unaudited)

 

 

Three Months Ended
November 30,

 

 

 

2021

 

 

2020

 

Net earnings (loss)

 

$

5.6

 

 

$

(6.7

)

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

Translation adjustment

 

 

(13.9

)

 

 

3.9

 

Reclassification of derivative financial instruments recognized in
   net earnings (loss)
1

 

 

1.0

 

 

 

1.2

 

Unrealized loss on derivative financial instruments 2

 

 

(3.2

)

 

 

(0.7

)

Other (net of tax effect)

 

 

(0.1

)

 

 

 

 

 

 

(16.2

)

 

 

4.4

 

Comprehensive loss

 

 

(10.6

)

 

 

(2.3

)

Comprehensive (income) loss attributable to noncontrolling interest

 

 

5.2

 

 

 

(3.3

)

Comprehensive loss attributable to Greenbrier

 

$

(5.4

)

 

$

(5.6

)

 

 

Three Months Ended
May 31,

 

 

Nine Months Ended
May 31,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net earnings (loss)

 

$

7.6

 

 

$

20.0

 

 

$

24.4

 

 

$

(0.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

Translation adjustment

 

 

2.2

 

 

 

4.8

 

 

 

(7.4

)

 

 

9.3

 

Reclassification of derivative financial instruments
   recognized in net earnings (loss)
1

 

 

1.5

 

 

 

1.4

 

 

 

3.8

 

 

 

3.9

 

Unrealized gain (loss) on derivative financial
   instruments
2

 

 

13.1

 

 

 

0.7

 

 

 

10.7

 

 

 

(0.2

)

Other (net of tax effect)

 

 

 

 

 

(0.2

)

 

 

0.1

 

 

 

(0.2

)

 

 

 

16.8

 

 

 

6.7

 

 

 

7.2

 

 

 

12.8

 

Comprehensive income

 

 

24.4

 

 

 

26.7

 

 

 

31.6

 

 

 

12.3

 

Comprehensive (earnings) loss attributable to
   noncontrolling interest

 

 

(4.6

)

 

 

(0.3

)

 

 

2.2

 

 

 

1.2

 

Comprehensive income attributable to Greenbrier

 

$

19.8

 

 

$

26.4

 

 

$

33.8

 

 

$

13.5

 

1 Net of tax effect of $(($0.50.7 million) and $(($0.4 million) for the three months ended November 30,May 31, 2022 and 2021 and 2020.($1.4 million) and ($1.2 million) for the nine months ended May 31, 2022 and 2021.

2 Net of tax effect of $($1.04.5 millionmillion) and nil($0.4 million) for the three months ended November 30,May 31, 2022 and 2021 and 2020.($4.3 million) and $0.3 million for the nine months ended May 31, 2022 and 2021.

The accompanying notes are an integral part of these financial statements

6


Condensed Consolidated Statements of Equity

(In millions, except per share amounts, unaudited)

Attributable to Greenbrier

 

 

 

 

 

 

 

Attributable to Greenbrier

 

 

 

 

 

 

 

Common
Stock
Shares

 

Additional
Paid-in
Capital

 

Retained
  Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Total
Equity -
Greenbrier

 

Noncontrolling
Interest

 

Total
Equity

 

Contingently
Redeemable
Noncontrolling
Interest

 

Common
Stock
Shares

 

Additional
Paid-in
Capital

 

Retained
  Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Total
Equity -
Greenbrier

 

Noncontrolling
Interest

 

Total
Equity

 

Contingently
Redeemable
Noncontrolling
Interest

 

Balance August 31, 2021

 

32.4

 

$

469.7

 

$

881.7

 

$

(43.7

)

$

1,307.7

 

$

168.7

 

$

1,476.4

 

$

29.7

 

 

32.4

 

$

469.7

 

$

881.7

 

$

(43.7

)

$

1,307.7

 

$

168.7

 

$

1,476.4

 

$

29.7

 

Cumulative effect adjustment due
to adoption of
ASU 2020-06
(see Note 1)

 

 

(58.8

)

 

4.9

 

 

(53.9

)

 

 

(53.9

)

 

 

 

 

(58.9

)

 

4.9

 

 

(54.0

)

 

 

(54.0

)

 

 

Net earnings (loss)

 

 

 

10.8

 

 

10.8

 

(5.2

)

 

5.6

 

 

Other comprehensive income
(loss), net

 

 

 

 

(16.2

)

 

(16.2

)

 

 

(16.2

)

 

 

Net earnings

 

 

 

26.7

 

 

26.7

 

(0.4

)

 

26.3

 

(1.9

)

Other comprehensive income, net

 

 

 

 

7.1

 

7.1

 

0.1

 

7.2

 

 

Noncontrolling interest adjustments

 

 

 

 

 

 

(0.2

)

 

(0.2

)

 

 

 

 

2.2

 

 

 

2.2

 

(1.5

)

 

0.7

 

 

Joint venture partner
distribution declared

 

 

 

 

 

 

(0.6

)

 

(0.6

)

 

 

 

 

 

 

 

 

(10.1

)

 

(10.1

)

 

 

Restricted stock awards (net of
cancellations)

 

0.1

 

10.5

 

 

 

10.5

 

 

10.5

 

 

 

0.2

 

11.9

 

 

 

11.9

 

 

11.9

 

 

Unamortized restricted stock

 

 

(14.0

)

 

 

 

(14.0

)

 

 

(14.0

)

 

 

 

 

(15.3

)

 

 

 

(15.3

)

 

 

(15.3

)

 

 

Restricted stock amortization

 

 

1.1

 

 

 

1.1

 

 

1.1

 

 

 

 

10.9

 

 

 

10.9

 

 

10.9

 

 

Cash dividends ($0.27 per share)

 

 

 

 

 

(8.7

)

 

 

 

(8.7

)

 

 

 

(8.7

)

 

 

Balance November 30, 2021

 

32.5

 

$

408.5

 

$

888.7

 

$

(59.9

)

$

1,237.3

 

$

162.7

 

$

1,400.0

 

$

29.7

 

Cash dividends ($0.81 per share)

 

 

 

 

 

(26.8

)

 

 

 

(26.8

)

 

 

 

(26.8

)

 

 

Balance May 31, 2022

 

32.6

 

$

420.5

 

$

886.5

 

$

(36.6

)

$

1,270.4

 

$

156.8

 

$

1,427.2

 

$

27.8

 

 

Attributable to Greenbrier

 

 

 

 

 

 

 

 

Common
Stock
Shares

 

Additional
Paid-in
Capital

 

 Retained
  Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Total
Equity -
Greenbrier

 

Noncontrolling
Interest

 

Total
Equity

 

Contingently
Redeemable
Noncontrolling
Interest

 

Balance August 31, 2020

 

32.7

 

$

460.4

 

$

885.5

 

$

(52.8

)

$

1,293.1

 

$

180.0

 

$

1,473.1

 

$

31.1

 

Cumulative effect adjustment due
   to adoption of
ASU 2016-13

 

 

 

 

 

(0.5

)

 

 

 

(0.5

)

 

 

 

(0.5

)

 

 

Net earnings (loss)

 

 

 

 

 

(10.0

)

 

 

 

(10.0

)

 

3.7

 

 

(6.3

)

 

(0.4

)

Other comprehensive income
   (loss), net

 

 

 

 

 

 

 

4.4

 

 

4.4

 

 

 

 

4.4

 

 

 

Noncontrolling interest adjustments

 

 

 

 

 

 

 

 

 

 

 

(1.3

)

 

(1.3

)

 

 

Joint venture partner
   distribution declared

 

 

 

 

 

 

 

 

 

 

 

(2.0

)

 

(2.0

)

 

 

Restricted stock awards (net of
   cancellations)

 

0.1

 

 

14.2

 

 

 

 

 

 

14.2

 

 

 

 

14.2

 

 

 

Unamortized restricted stock

 

 

 

(16.5

)

 

 

 

 

 

(16.5

)

 

 

 

(16.5

)

 

 

Restricted stock amortization

 

 

 

4.4

 

 

 

 

 

 

4.4

 

 

 

 

4.4

 

 

 

Cash dividends ($0.27 per share)

 

 

 

 

 

(8.6

)

 

 

 

(8.6

)

 

 

 

(8.6

)

 

 

Balance November 30, 2020

 

32.8

 

$

462.5

 

$

866.4

 

$

(48.4

)

$

1,280.5

 

$

180.4

 

$

1,460.9

 

$

30.7

 

 

Attributable to Greenbrier

 

 

 

 

 

 

 

 

Common
Stock
Shares

 

Additional
Paid-in
Capital

 

Retained
  Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Total
Equity -
Greenbrier

 

Noncontrolling
Interest

 

Total
Equity

 

Contingently
Redeemable
Noncontrolling
Interest

 

Balance February 28, 2022

 

32.6

 

$

413.4

 

$

892.5

 

$

(53.3

)

$

1,252.6

 

$

154.1

 

$

1,406.7

 

$

28.5

 

Cumulative effect adjustment due
   to adoption of
ASU 2020-06
   (see Note 1)

 

 

 

(0.1

)

 

 

 

 

 

(0.1

)

 

 

 

(0.1

)

 

 

Net earnings

 

 

 

 

 

3.1

 

 

 

 

3.1

 

 

5.2

 

 

8.3

 

 

(0.7

)

Other comprehensive income, net

 

 

 

 

 

 

 

16.7

 

 

16.7

 

 

0.1

 

 

16.8

 

 

 

Noncontrolling interest
   adjustments

 

 

 

2.2

 

 

 

 

 

 

2.2

 

 

(0.9

)

 

1.3

 

 

 

Joint venture partner
   distribution declared

 

 

 

 

 

 

 

 

 

 

 

(1.7

)

 

(1.7

)

 

 

Restricted stock amortization

 

 

 

5.0

 

 

 

 

 

 

5.0

 

 

 

 

5.0

 

 

 

Cash dividends ($0.27 per share)

 

 

 

 

 

(9.1

)

 

 

 

(9.1

)

 

 

 

(9.1

)

 

 

Balance May 31, 2022

 

32.6

 

$

420.5

 

$

886.5

 

$

(36.6

)

$

1,270.4

 

$

156.8

 

$

1,427.2

 

$

27.8

 

The accompanying notes are an integral part of these financial statements

7


 

Attributable to Greenbrier

 

 

 

 

 

 

 

 

Common
Stock
Shares

 

Additional
Paid-in
Capital

 

Retained
  Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Total
Equity -
Greenbrier

 

Noncontrolling
Interest

 

Total
Equity

 

Contingently
Redeemable
Noncontrolling
Interest

 

Balance August 31, 2020

 

32.7

 

$

460.4

 

$

885.5

 

$

(52.8

)

$

1,293.1

 

$

180.0

 

$

1,473.1

 

$

31.1

 

Cumulative effect adjustment due
   to adoption of
ASU 2016-13

 

 

 

 

 

(0.5

)

 

 

 

(0.5

)

 

 

 

(0.5

)

 

 

Net earnings

 

 

 

 

 

0.7

 

 

 

 

0.7

 

 

(0.4

)

 

0.3

 

 

(0.8

)

Other comprehensive income, net

 

 

 

 

 

 

 

12.8

 

 

12.8

 

 

 

 

12.8

 

 

 

Noncontrolling interest adjustments

 

 

 

 

 

 

 

 

 

 

 

0.3

 

 

0.3

 

 

 

Joint venture partner
   distribution declared

 

 

 

 

 

 

 

 

 

 

 

(23.0

)

 

(23.0

)

 

 

Investment by joint venture partner

 

 

 

 

 

 

 

 

 

 

 

7.0

 

 

7.0

 

 

 

Restricted stock awards (net of
   cancellations)

 

0.1

 

 

15.0

 

 

 

 

 

 

15.0

 

 

 

 

15.0

 

 

 

Unamortized restricted stock

 

 

 

(17.9

)

 

 

 

 

 

(17.9

)

 

 

 

(17.9

)

 

 

Restricted stock amortization

 

 

 

12.5

 

 

 

 

 

 

12.5

 

 

 

 

12.5

 

 

 

Repurchase of stock

 

(0.4

)

 

(20.0

)

 

 

 

 

 

(20.0

)

 

 

 

(20.0

)

 

 

2.875% Convertible senior notes, due
   2028 - equity component, net of tax

 

 

 

56.3

 

 

 

 

 

 

56.3

 

 

 

 

56.3

 

 

 

2.875% Convertible senior notes, due
   2028 issuance costs - equity
   component, net of tax

 

 

 

(1.8

)

 

 

 

 

 

(1.8

)

 

 

 

(1.8

)

 

 

2.875% Convertible senior notes, due
   2024 - equity component
   extinguishment, net of tax

 

 

 

(28.5

)

 

 

 

 

 

(28.5

)

 

 

 

(28.5

)

 

 

2.25% Convertible senior notes, due
   2024 - equity component
   extinguishment, net of tax

 

 

 

(8.2

)

 

 

 

 

 

(8.2

)

 

 

 

(8.2

)

 

 

Cash dividends ($0.81 per share)

 

 

 

 

 

(26.7

)

 

 

 

(26.7

)

 

 

 

(26.7

)

 

 

Balance May 31, 2021

 

32.4

 

$

467.8

 

$

859.0

 

$

(40.0

)

$

1,286.8

 

$

163.9

 

$

1,450.7

 

$

30.3

 

Condensed Consolidated Statements of Cash Flows

 

Attributable to Greenbrier

 

 

 

 

 

 

 

 

Common
Stock
Shares

 

Additional
Paid-in
Capital

 

Retained
  Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Total
Equity -
Greenbrier

 

Noncontrolling
Interest

 

Total
Equity

 

Contingently
Redeemable
Noncontrolling
Interest

 

Balance February 28, 2021

 

32.8

 

$

467.0

 

$

848.2

 

$

(46.7

)

$

1,268.5

 

$

175.9

 

$

1,444.4

 

$

30.0

 

Net earnings

 

 

 

 

 

19.7

 

 

 

 

19.7

 

 

 

 

19.7

 

 

0.3

 

Other comprehensive income, net

 

 

 

 

 

 

 

6.7

 

 

6.7

 

 

 

 

6.7

 

 

 

Noncontrolling interest
   adjustments

 

 

 

 

 

 

 

 

 

 

 

1.6

 

 

1.6

 

 

 

Joint venture partner
   distribution declared

 

 

 

 

 

 

 

 

 

 

 

(20.6

)

 

(20.6

)

 

 

Investment by joint venture partner

 

 

 

 

 

 

 

 

 

 

 

7.0

 

 

7.0

 

 

 

Restricted stock awards (net of
   cancellations)

 

 

 

(0.5

)

 

 

 

 

 

(0.5

)

 

 

 

(0.5

)

 

 

Restricted stock amortization

 

 

 

3.5

 

 

 

 

 

 

3.5

 

 

 

 

3.5

 

 

 

Repurchase of stock

 

(0.4

)

 

(20.0

)

 

 

 

 

 

(20.0

)

 

 

 

(20.0

)

 

 

2.875% Convertible senior notes, due
   2028 - equity component, net of tax

 

 

 

56.3

 

 

 

 

 

 

56.3

 

 

 

 

56.3

 

 

 

2.875% Convertible senior notes, due
   2028 issuance costs - equity
   component, net of tax

 

 

 

(1.8

)

 

 

 

 

 

(1.8

)

��

 

 

(1.8

)

 

 

2.875% Convertible senior notes, due
   2024 - equity component
   extinguishment, net of tax

 

 

 

(28.5

)

 

 

 

 

 

(28.5

)

 

 

 

(28.5

)

 

 

2.25% Convertible senior notes, due
   2024 - equity component
   extinguishment, net of tax

 

 

 

(8.2

)

 

 

 

 

 

(8.2

)

 

 

 

(8.2

)

 

 

Cash dividends ($0.27 per share)

 

 

 

 

 

(8.9

)

 

 

 

(8.9

)

 

 

 

(8.9

)

 

 

Balance May 31, 2021

 

32.4

 

$

467.8

 

$

859.0

 

$

(40.0

)

$

1,286.8

 

$

163.9

 

$

1,450.7

 

$

30.3

 

(In millions, unaudited)

 

 

Three Months Ended
November 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

Net earnings (loss)

 

$

5.6

 

 

$

(6.7

)

Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Deferred income taxes

 

 

(4.8

)

 

 

2.3

 

Depreciation and amortization

 

 

25.4

 

 

 

26.0

 

Net gain on disposition of equipment

 

 

(8.5

)

 

 

(0.9

)

Accretion of debt discount

 

 

 

 

 

1.4

 

Stock based compensation expense

 

 

1.1

 

 

 

4.4

 

Noncontrolling interest adjustments

 

 

(0.3

)

 

 

(1.3

)

Other

 

 

0.7

 

 

 

0.6

 

Decrease (increase) in assets:

 

 

 

 

 

 

Accounts receivable, net

 

 

(86.9

)

 

 

(6.4

)

Inventories

 

 

(64.4

)

 

 

13.4

 

Leased railcars for syndication

 

 

(29.5

)

 

 

6.2

 

Other assets

 

 

(5.9

)

 

 

2.2

 

Increase (decrease) in liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

(24.1

)

 

 

(27.2

)

Deferred revenue

 

 

(5.1

)

 

 

(5.4

)

Net cash provided by (used in) operating activities

 

 

(196.7

)

 

 

8.6

 

Cash flows from investing activities

 

 

 

 

 

 

Proceeds from sales of assets

 

 

28.0

 

 

 

8.7

 

Capital expenditures

 

 

(186.9

)

 

 

(38.6

)

Investments in and advances to / repayments from unconsolidated affiliates

 

 

0.2

 

 

 

4.5

 

Cash distribution from unconsolidated affiliates and other

 

 

 

 

 

0.5

 

Net cash used in investing activities

 

 

(158.7

)

 

 

(24.9

)

Cash flows from financing activities

 

 

 

 

 

 

Net change in revolving notes with maturities of 90 days or less

 

 

147.6

 

 

 

(9.7

)

Proceeds from revolving notes with maturities longer than 90 days

 

 

 

 

 

110.0

 

Repayments of revolving notes with maturities longer than 90 days

 

 

 

 

 

(175.0

)

Repayments of notes payable

 

 

(2.0

)

 

 

(8.9

)

Debt issuance costs

 

 

(1.2

)

 

 

 

Dividends

 

 

(9.3

)

 

 

(9.2

)

Cash distribution to joint venture partner

 

 

(1.0

)

 

 

(2.8

)

Tax payments for net share settlement of restricted stock

 

 

(3.4

)

 

 

(2.3

)

Net cash provided by (used in) financing activities

 

 

130.7

 

 

 

(97.9

)

Effect of exchange rate changes

 

 

(8.8

)

 

 

5.2

 

Decrease in cash and cash equivalents and restricted cash

 

 

(233.5

)

 

 

(109.0

)

Cash and cash equivalents and restricted cash

 

 

 

 

 

 

Beginning of period

 

 

671.4

 

 

 

842.1

 

End of period

 

$

437.9

 

 

$

733.1

 

Balance sheet reconciliation

 

 

 

 

 

 

Cash and cash equivalents

 

$

410.8

 

 

$

724.6

 

Restricted cash

 

 

27.1

 

 

 

8.5

 

Total cash and cash equivalents and restricted cash as presented above

 

$

437.9

 

 

$

733.1

 

Cash (received) paid during the period for

 

 

 

 

 

 

Interest

 

$

10.6

 

 

$

6.3

 

Income taxes, net

 

$

(0.7

)

 

$

5.2

 

Non-cash activity

 

 

 

 

 

 

Transfers between Leased railcars for syndication and Inventories and
   Equipment on operating leases, net

 

$

(13.8

)

 

$

75.7

 

Capital expenditures accrued in Accounts payable and accrued liabilities

 

$

1.6

 

 

$

1.8

 

Change in Accounts payable and accrued liabilities associated with dividends declared

 

$

(0.6

)

 

$

(0.6

)

Change in Accounts payable and accrued liabilities associated with cash
   distributions to joint venture partner

 

$

0.4

 

 

$

0.8

 

The accompanying notes are an integral part of these financial statements

8


Condensed Consolidated Statements of Cash Flows

(In millions, unaudited)

 

 

Nine Months Ended
May 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net earnings (loss)

 

$

24.4

 

 

$

(0.5

)

Adjustments to reconcile net earnings (loss) to net cash used in operating activities:

 

 

 

 

 

 

Deferred income taxes

 

 

16.9

 

 

 

20.2

 

Depreciation and amortization

 

 

75.9

 

 

 

75.6

 

Net gain on disposition of equipment

 

 

(34.3

)

 

 

(0.8

)

Accretion of debt discount

 

 

 

 

 

4.6

 

Stock based compensation expense

 

 

10.9

 

 

 

12.5

 

Net loss on extinguishment of debt

 

 

 

 

 

4.8

 

Noncontrolling interest adjustments

 

 

0.7

 

 

 

0.3

 

Other

 

 

3.4

 

 

 

1.8

 

Decrease (increase) in assets:

 

 

 

 

 

 

Accounts receivable, net

 

 

(160.3

)

 

 

(49.2

)

Income tax receivable

 

 

(17.3

)

 

 

(66.0

)

Inventories

 

 

(224.2

)

 

 

(92.3

)

Leased railcars for syndication

 

 

(77.6

)

 

 

(55.5

)

Other assets

 

 

(16.1

)

 

 

0.9

 

Increase (decrease) in liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

77.2

 

 

 

18.6

 

Deferred revenue

 

 

(8.0

)

 

 

1.2

 

Net cash used in operating activities

 

 

(328.4

)

 

 

(123.8

)

Cash flows from investing activities

 

 

 

 

 

 

Proceeds from sales of assets

 

 

155.1

 

 

 

12.2

 

Capital expenditures

 

 

(248.8

)

 

 

(62.9

)

Investments in and advances to / repayments from unconsolidated affiliates

 

 

(4.2

)

 

 

0.7

 

Cash distribution from unconsolidated affiliates and other

 

 

1.8

 

 

 

0.7

 

Net cash used in investing activities

 

 

(96.1

)

 

 

(49.3

)

Cash flows from financing activities

 

 

 

 

 

 

Net change in revolving notes with maturities of 90 days or less

 

 

(97.3

)

 

 

147.6

 

Proceeds from revolving notes with maturities longer than 90 days

 

 

35.0

 

 

 

112.0

 

Repayments of revolving notes with maturities longer than 90 days

 

 

 

 

 

(286.0

)

Proceeds from issuance of notes payable

 

 

323.3

 

 

 

373.8

 

Repayments of notes payable

 

 

(15.0

)

 

 

(308.5

)

Debt issuance costs

 

 

(7.2

)

 

 

(14.1

)

Repurchase of stock

 

 

 

 

 

(20.0

)

Dividends

 

 

(26.9

)

 

 

(26.9

)

Investment by joint venture partner

 

 

 

 

 

7.0

 

Cash distribution to joint venture partner

 

 

(9.4

)

 

 

(24.1

)

Tax payments for net share settlement of restricted stock

 

 

(3.5

)

 

 

(2.8

)

Net cash provided by (used in) financing activities

 

 

199.0

 

 

 

(42.0

)

Effect of exchange rate changes

 

 

19.9

 

 

 

9.9

 

Decrease in cash and cash equivalents and restricted cash

 

 

(205.6

)

 

 

(205.2

)

Cash and cash equivalents and restricted cash

 

 

 

 

 

 

Beginning of period

 

 

671.4

 

 

 

842.1

 

End of period

 

$

465.8

 

 

$

636.9

 

Balance sheet reconciliation

 

 

 

 

 

 

Cash and cash equivalents

 

$

449.7

 

 

$

628.2

 

Restricted cash

 

 

16.1

 

 

 

8.7

 

Total cash and cash equivalents and restricted cash as presented above

 

$

465.8

 

 

$

636.9

 

Cash paid during the period for

 

 

 

 

 

 

Interest

 

$

33.3

 

 

$

20.7

 

Income taxes, net

 

$

11.1

 

 

$

9.9

 

Non-cash activity

 

 

 

 

 

 

Transfers between Leased railcars for syndication and Inventories and
   Equipment on operating leases, net

 

$

13.0

 

 

$

78.1

 

Capital expenditures accrued in Accounts payable and accrued liabilities

 

$

5.7

 

 

$

1.9

 

Change in Accounts payable and accrued liabilities associated with dividends declared

 

$

(0.1

)

 

$

0.2

 

Change in Accounts payable and accrued liabilities associated with cash
   distributions to joint venture partner

 

$

0.6

 

 

$

1.1

 

The accompanying notes are an integral part of these financial statements

9


Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Interim Financial Statements

The Condensed Consolidated Financial Statements of The Greenbrier Companies, Inc. and its subsidiaries (Greenbrier or the Company) as of November 30, 2021May 31, 2022 and for the three and nine months ended November 30,May 31, 2022 and 2021 and 2020 have been prepared to reflect all adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary for a fair presentation of the financial position, operating results and cash flows for the periods indicated. The results of operations for the three and nine months ended November 30, 2021May 31, 2022 are not necessarily indicative of the results to be expected for the entire year ending August 31, 2022.

Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these unaudited financial statements should be read in conjunction with the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended August 31, 2021.

In the first quarter of 2022 the Company renamed two of its reportable segments to more prominently display the nature of the customer solutions it provides and markets in which it operates. The new names of its reportable segments are Manufacturing (unchanged), Maintenance Services (previously Wheels, Repair & Parts), and Leasing & Management Services (previously Leasing & Services). The name changes have no impact on the organization’s reporting structure nor on financial information previously reported. However,Separately, effective September 1, 2021, the Company also changed its measurement basis for allocating syndication revenue between the Manufacturing and Leasing & Management Services reportable segments. This change in measurement reflects the information currently used by management to assess the Company's operating performance in accordance with its refined leasing strategy and has no impact to the Company’s total consolidated revenue. Segment results for the prior periods have been recast to conform to the current period presentation.

Greenbrier-Astra Rail was formed in 2017 between the Company’s existing European operations headquartered in Poland and Astra Rail, based in Romania. Greenbrier-Astra Rail is controlled by the Company with an approximate 75% interest. In 2017, Astra Rail received a put option to sell its entire noncontrolling interest to Greenbrier. The option was exercisable 30 business days prior to and up until June 1, 2022. During the second quarter of 2022, the option was extended to be exercisable 30 business days prior to and up until June 1, 2026.

Management Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (GAAP) requires judgment on the part of management to arrive at estimates and assumptions on matters that are inherently uncertain. These estimates may affect the amount of assets, liabilities, revenue and expenses reported in the financial statements and accompanying notes and disclosure of contingent assets and liabilities within the financial statements. Estimates and assumptions are periodically evaluated and may be adjusted in future periods. Actual results could differ from those estimates.

Initial Adoption of Accounting Standards

Convertible Instruments and Contracts in an Entity’s Own Equity

In August 2020, the FASB issued Accounting Standard Update 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity(ASU 2020-06), which simplifies the accounting for certain convertible instruments, amends guidance on derivative scope exceptions for contracts in an entity’s own equity and modifies the guidance on diluted EPS calculations as a result of these changes. The Company adopted this guidance effective September 1, 2021 on a modified retrospective basis and recorded a cumulative effect adjustment to increase Retained earnings by $5 million. The impact of adoption also resulted in a reduction to Additional paid in capital of approximately $59 million related to amounts attributable to conversion options that had previously been recorded in equity and the associated derecognition of related deferred tax liabilities of $17 million. Additionally, the Company recorded an increase to its convertible notes balance by an aggregate amount of approximately $71 million as a result of derecognizing the debt discount. The adoption of this guidance also decreased the amount of non-cash interest expense to be recognized in future periods as a result of eliminating the discount associated with the equity component. The Company did not incur any impact to liquidity or cash flows. As of September 1, 2021, when calculating net

10


earnings attributable to Greenbrier per share of common stock, the Company uses the if-converted method as required under ASU 2020-06 to determine the dilutive effect of its convertible notes.

9


Simplification of Accounting for Income Taxes

In December 2019, the FASB issued Accounting Standard Update 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes(ASU 2019-12), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 for: recognizing deferred taxes for investments, performing intra-period allocations and calculating taxes in interim periods. The ASU also improves consistent application of GAAP for other areas of Topic 740 by clarifying and amending existing guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The Company adopted this guidance September 1, 2021 with no impact to the Company's consolidated financial statements. The ongoing application of ASU 2019-12 is not expected to materially impact the Company's consolidated financial statements.

Prospective Accounting Changes

Reference Rate Reform

In March 2020, the FASB issued ASUAccounting Standard Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04), which provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The elective amendments provide expedients to contract modification, affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by this guidance apply only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (“LIBOR”)(LIBOR) or another reference rate expected to be discontinued as a result of reference rate reform. This guidance is not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The guidance can be applied immediately through December 31, 2022. The Company expects to adopt this standard when LIBOR is discontinued if there is a mismatch in ourits interest rate swap and derivatives for a period of time. The Company does not expect a material impact to its financial condition, results of operations or disclosures based on the current debt portfolio and capital structure.

Note 2 – Asset Backed Securities

GBX Leasing 2022-1 LLC (GBXL I) was formed as a wholly owned special purpose entity (SPE) of GBX Leasing to securitize the leasing assets of GBX Leasing. On February 9, 2022, GBXL I (Issuer) issued $323.3 million of term notes secured by a portfolio of railcars and associated operating leases and other assets, acquired and owned by GBXL I. Greenbrier Management Services, LLC (GMS) entered into certain agreements relating to the management and servicing of the Issuer’s assets. The Company used the net proceeds received from the issuance of the term notes to pay down the GBX Leasing warehouse credit facility.

The Company evaluated the accounting for the transaction and concluded that, based on its equity investment in the Issuer combined with GMS’s capacity as servicer, the Company is the primary beneficiary of the SPE and will consolidate the SPE for financial reporting purposes.

Issued debt includes principal of $302.6 million of GBXL I Series 2022-1 Class A Secured Railcar Equipment Notes (Class A Notes) and $20.7 million of GBXL I Series 2022-1 Class B Secured Railcar Equipment Notes (Class B Notes), collectively the GBXL Series 2022-1 Notes (the GBXL Notes). The GBXL Notes bear interest at fixed rates of 2.87% and 3.45% for the Class A Notes and Class B Notes, respectively. The GBXL Notes are payable monthly and have a legal maturity date of February 20, 2052. The Company incurred $5.0 million in debt issuance costs, which will be amortized to interest expense through the expected repayment period. Both Class A and Class B Notes have an anticipated repayment date of January 20, 2029 and a legal maturity date. While the legal maturity date is in 2052, the cash flows generated from the railcar assets will pay down the GBXL Notes in line with the agreement, which based on expected cash flow payments, would result in repayment in advance of the legal maturity date. If the principal amount of the GBXL Notes has not been repaid in full by the anticipated repayment date, then the Issuer will also be required to pay additional interest to the holders at a rate equal to 4.00% per annum.

11


The GBXL Notes are obligations of the Issuer only and are nonrecourse to Greenbrier. The GBXL Notes are subject to a Master Indenture between the Issuer and U.S. Bank Trust Company, National Association, as trustee, as supplemented by a Series 2022-1 Supplement dated February 9, 2022. The GBXL Notes may be subject to acceleration upon the occurrence of certain events of default.

The following table summarizes the Issuer's net carrying amount of the assets transferred and the related debt.

(in millions)

 

May 31, 2022

 

Assets

 

 

 

Restricted cash

 

$

7.0

 

Equipment on operating leases, net

 

 

406.4

 

Liabilities

 

 

 

Notes payable, net

 

$

315.7

 

Note 23 – Revenue Recognition

Contract balances

Contract assets primarily consist of unbilled receivables related to marine vessel construction for which the respective contracts do not yet permit billing at the reporting date, and railcar repairmaintenance and conversion inventories. Contract liabilities primarily consist of customer prepayments for manufacturing, maintenance, and other management-type services, for which the Company has not yet satisfied the related performance obligations.

The contract balances are as follows:

(in millions)

 


Balance sheet classification

 

November 30,
2021

 

 

August 31,
2021

 

 

$
change

 

 

Balance sheet classification

 

May 31,
2022

 

 

August 31,
2021

 

 

$
change

 

Contract assets

 

Accounts receivable, net

 

$

9.1

 

$

5.9

 

$

3.2

 

 

Accounts receivable, net

 

$

16.7

 

 

$

5.9

 

 

$

10.8

 

Contract assets

 

Inventories

 

$

11.7

 

$

6.7

 

$

5.0

 

 

Inventories

 

$

13.4

 

 

$

6.7

 

 

$

6.7

 

Contract liabilities 1

 

Deferred revenue

 

$

30.6

 

$

36.4

 

$

(5.8

)

 

Deferred revenue

 

$

27.8

 

 

$

36.4

 

 

$

(8.6

)

1 Contract liabilities balance includes deferred revenue within the scope of Revenue from Contracts with Customers (Topic 606).

For the three and nine months ended November 30, 2021,May 31, 2022, the Company recognized $9.61.5 million and $14.8 million, respectively, of revenue that was included in Contract liabilities as of August 31, 2021.

10


Performance obligations

As of November 30, 2021,May 31, 2022, the Company has entered into contracts with customers for which revenue has not yet been recognized. The following table outlines estimated revenue related to performance obligations wholly or partially unsatisfied, that the Company anticipates will be recognized in future periods.

(in millions)

 

November 30,
2021

 

 

May 31,
2022

 

Revenue type:

 

 

 

 

 

 

Manufacturing – Railcar sales

 

$

2,471.3

 

 

$

2,835.7

 

Manufacturing – Marine

 

$

61.5

 

 

$

40.6

 

Manufacturing – Conversions

 

$

212.0

 

 

$

227.1

 

Management services

 

$

128.2

 

 

$

124.4

 

Other

 

$

11.1

 

 

$

7.6

 

 

 

 

 

 

 

Manufacturing – Railcars intended for syndication 1

 

$

370.3

 

 

$

639.8

 

1 Not a performance obligation as defined in Topic 606.

 

Based on current production and delivery schedules and existing contracts, approximately $1.32.5 billion of Railcar sales are expected to be recognized in the remaining nine months offiscal 2022 and 2023 while the remaining amount is expected to be recognized into 2024. The table above excludes estimated revenue to be recognized at the Company’s Brazilian manufacturing operations, as they are accounted for under the equity method.

12


Revenue amounts reflected in Railcars intended for syndication may be syndicated to third parties or held in the Company’s fleet depending on a variety of factors.

Marine revenue is expected to be recognized through 2023 as vessel construction is completed.

Conversions represent modernization orders to modernize existing or in-service railcars and are expected to be recognized through 2023.

Management services includes management and maintenance services of which approximately 5149% are expected to be performed through 2026 and the remaining amount through 2037.

Note 34 – Inventories

Inventories are valued at the lower of cost or net realizable value using the first-in first-out method. Work-in-process includes material, labor and overhead. Finished goods includes completed wheels, parts and railcars not on lease or in transit. The following table summarizes the Company’s inventory balance:

(in millions)

 

November 30,
2021

 

 

August 31,
2021

 

Manufacturing supplies and raw materials

 

$

471.3

 

 

$

352.8

 

Work-in-process

 

 

117.1

 

 

 

167.3

 

Finished goods

 

 

58.2

 

 

 

73.4

 

Excess and obsolete adjustment

 

 

(15.2

)

 

 

(19.9

)

 

 

$

631.4

 

 

$

573.6

 

(in millions)

 

May 31,
2022

 

 

August 31,
2021

 

Manufacturing supplies and raw materials

 

$

561.3

 

 

$

352.8

 

Work-in-process

 

 

149.9

 

 

 

167.3

 

Finished goods

 

 

84.2

 

 

 

73.4

 

Excess and obsolete adjustment

 

 

(13.7

)

 

 

(19.9

)

 

 

$

781.7

 

 

$

573.6

 

11


Note 45 – Intangibles and Other Assets, net

Intangible assets that are determined to have finite lives are amortized over their useful lives. Intangible assets with indefinite useful lives are not amortized and are periodically evaluated for impairment.

The following table summarizes the Company’s identifiable intangible and other assets balance:

(in millions)

 

November 30,
2021

 

 

August 31,
2021

 

 

May 31,
2022

 

 

August 31,
2021

 

Intangible assets subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

89.8

 

$

89.8

 

 

$

87.5

 

 

$

89.8

 

Accumulated amortization

 

(65.9

)

 

(64.1

)

 

 

(65.3

)

 

 

(64.1

)

Other intangibles

 

41.9

 

40.3

 

 

 

42.4

 

 

 

40.3

 

Accumulated amortization

 

 

(14.0

)

 

 

(13.0

)

 

 

(15.8

)

 

 

(13.0

)

 

51.8

 

53.0

 

 

 

48.8

 

 

 

53.0

 

Intangible assets not subject to amortization

 

2.4

 

2.4

 

 

 

2.4

 

 

 

2.4

 

Prepaid and other assets

 

24.3

 

26.7

 

 

 

33.4

 

 

 

26.7

 

Operating lease ROU assets

 

42.4

 

39.8

 

 

 

39.4

 

 

 

39.8

 

Nonqualified savings plan investments

 

47.7

 

47.7

 

 

 

44.2

 

 

 

47.7

 

Debt issuance costs, net

 

9.0

 

8.6

 

 

 

7.8

 

 

 

8.6

 

Assets held for sale

 

 

5.4

 

 

5.4

 

 

 

1.8

 

 

 

5.4

 

Total Intangible and other assets, net

 

$

183.0

 

$

183.6

 

 

$

177.8

 

 

$

183.6

 

Amortization expense was $3.11.9 million and $2.87.3 million for the three and nine months ended November 30,May 31, 2022, respectively and $2.9 million and $8.5 million for the three and nine months ended May 31, 2021, and 2020 respectively. Amortization expense for the years ending August 31, 2022, 2023, 2024, 2025 and 2026 is expected to be $8.99.2 million, $7.68.1 million, $7.37.5 million, $6.06.4 million and $5.86.1 million, respectively.

13


Note 56 – Revolving Notes

Senior secured credit facilities, consisting of 4 components, aggregated to $1.1 billion as of November 30, 2021.May 31, 2022.

As of November 30, 2021,May 31, 2022, a $600.0 million revolving line of credit, maturing August 2026, secured by substantially all the Company’s U.S. assets not otherwise pledged as security for term loans or the warehouse credit facility, existed to provide working capital and interim financing of equipment, principally for the Company’s U.S. and Mexican operations. Advances under this North American credit facility bear interest at LIBOR plus 1.50% or Prime plus 0.50% depending on the type of borrowing. Available borrowings under the credit facility are generally based on defined levels of eligible inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios.

As of November 30, 2021,May 31, 2022, a $300.0350.0 million non-recourse warehouse credit facility existed to support the operations of GBX Leasing, a joint venture in which the Company owns approximately 95%. Advances under this facility bear interest at LIBOR plus 2.0%. The warehouse credit facility converts to a term loan in April 2023 and matures in April 2025.

As of November 30, 2021,May 31, 2022, lines of credit totaling $73.873.7 million secured by certain of the Company’s European assets, with variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 1.2% to WIBOR plus 1.5% and Euro Interbank Offered Rate (EURIBOR) plus 1.1%, were available for working capital needs of the Company’s European manufacturing operations. The European lines of credit include $37.435.4 million which are guaranteed by the Company. European credit facilities are regularly renewed. Currently, these European credit facilities have maturities that range from JuneJuly 2022 through October 2023.

12


As of November 30, 2021,May 31, 2022, the Company’s Mexican railcar manufacturing operations had 4 lines of credit totaling $120.0 million for working capital needs. The first line of credit provides up to $30.0 million, of which the Company and its joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 3.75% to 4.25%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through June 2024. The second line of credit provides up to $35.0 million, of which the Company and its joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 3.70%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through June 2023. The third line of credit provides up to $50.0 million and matures in October 2024. Advances under this facility bear interest at LIBOR plus 4.25%. The fourth line of credit provides up to $5.0 million and matures in September 2022. Advances under this facility bear interest at LIBOR plus 2.95%.

Credit facility balances:

(in millions)

 

November 30,
2021

 

 

August 31,
2021

 

 

May 31,
2022

 

 

August 31,
2021

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

160.0

 

$

160.0

 

 

$

160.0

 

 

$

160.0

 

Mexico

 

 

85.0

 

 

 

15.0

 

Europe

 

 

58.3

 

 

 

50.2

 

GBX Leasing

 

293.0

 

147.0

 

 

 

-

 

 

 

147.0

 

Europe

 

48.3

 

50.2

 

Mexico

 

 

15.0

 

 

15.0

 

Total Revolving notes

 

$

516.3

 

$

372.2

 

 

$

303.3

 

 

$

372.2

 

Outstanding commitments under the North American credit facility included letters of credit which totaled $6.76.9 million and $8.4 million as of November 30, 2021May 31, 2022 and August 31, 2021, respectively.

 

As of November 30, 2021,May 31, 2022, the Company had an aggregate of $199.085.0 million available to draw down under committed credit facilities.

14


Note 67 – Accounts Payable and Accrued Liabilities

(in millions)

 

November 30,
2021

 

 

August 31,
2021

 

Trade payables

 

$

262.3

 

 

$

265.1

 

Other accrued liabilities

 

 

93.0

 

 

 

109.1

 

Operating lease liabilities

 

 

45.0

 

 

 

42.6

 

Accrued payroll and related liabilities

 

 

112.6

 

 

 

125.1

 

Accrued warranty

 

 

27.5

 

 

 

27.9

 

 

 

$

540.4

 

 

$

569.8

 

(in millions)

 

May 31,
2022

 

 

August 31,
2021

 

Trade payables

 

$

327.6

 

 

$

265.1

 

Other accrued liabilities

 

 

116.0

 

 

 

109.1

 

Operating lease liabilities

 

 

41.7

 

 

 

42.6

 

Accrued payroll and related liabilities

 

 

125.2

 

 

 

125.1

 

Accrued warranty

 

 

28.5

 

 

 

27.9

 

 

 

$

639.0

 

 

$

569.8

 

Note 78 – Warranty Accruals

Warranty costs are estimated and charged to operations to cover a defined warranty period. The estimated warranty cost is based on the history of warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types. The warranty accruals, included in Accounts payable and accrued liabilities on the Consolidated Balance Sheets, are reviewed periodically and updated based on warranty trends and expirations of warranty periods.

13


Warranty accrual activity:

 

Three Months Ended
November 30,

 

 

Three Months Ended
May 31,

 

 

Nine Months Ended
May 31,

 

(in millions)

 

2021

 

 

2020

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Balance at beginning of period

 

$

27.9

 

$

45.2

 

 

$

30.1

 

 

$

42.7

 

 

$

27.9

 

 

$

45.2

 

Charged to cost of revenue, net

 

0.9

 

2.0

 

 

 

1.7

 

 

 

(9.2

)

 

 

7.6

 

 

 

(7.9

)

Payments

 

(1.0

)

 

(1.4

)

 

 

(3.1

)

 

 

(2.0

)

 

 

(6.4

)

 

 

(5.8

)

Currency translation effect

 

 

(0.3

)

 

 

(0.1

)

 

 

(0.2

)

 

 

0.1

 

 

 

(0.6

)

 

 

0.1

 

Balance at end of period

 

$

27.5

 

$

45.7

 

 

$

28.5

 

 

$

31.6

 

 

$

28.5

 

 

$

31.6

 

Note 89 – Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss, net of tax effect as appropriate, consisted of the following:

(in millions)

 

Unrealized
Gain (Loss)
on Derivative
Financial
Instruments

 

 

Foreign
Currency
Translation
Adjustment

 

 

Other

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Unrealized
Gain (Loss)
on Derivative
Financial
Instruments

 

 

Foreign
Currency
Translation
Adjustment

 

 

Other

 

 

Accumulated
Other
Comprehensive
Loss

 

Balance, August 31, 2021

 

$

(7.4

)

 

$

(35.8

)

 

$

(0.5

)

 

$

(43.7

)

 

$

(7.4

)

 

$

(35.8

)

 

$

(0.5

)

 

$

(43.7

)

Other comprehensive gain (loss) before reclassifications

 

(3.2

)

 

 

(13.9

)

 

 

(0.1

)

 

(17.2

)

 

 

10.7

 

 

 

(7.5

)

 

 

0.1

 

 

 

3.3

 

Amounts reclassified from Accumulated other
comprehensive loss

 

 

1.0

 

 

 

 

 

 

1.0

 

 

 

3.8

 

 

 

 

 

 

 

 

 

3.8

 

Balance, November 30, 2021

 

$

(9.6

)

 

$

(49.7

)

 

$

(0.6

)

 

$

(59.9

)

Balance, May 31, 2022

 

$

7.1

 

 

$

(43.3

)

 

$

(0.4

)

 

$

(36.6

)

The amounts reclassified out of Accumulated other comprehensive loss into the Consolidated Statements of Operations,Income, with financial statement caption, were as follows:

 

 

Three Months Ended
November 30,

 

 

 

(in millions)

 

2021

 

 

2020

 

 

Financial Statement Caption

(Gain) loss on derivative financial instruments:

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

1.3

 

 

$

1.3

 

 

Revenue and Cost of revenue

Interest rate swap contracts

 

 

0.2

 

 

 

0.3

 

 

Interest and foreign exchange

 

 

 

1.5

 

 

 

1.6

 

 

Total before tax

 

 

 

(0.5

)

 

 

(0.4

)

 

Income tax expense

 

 

$

1.0

 

 

$

1.2

 

 

Net of tax

 

 

Three Months Ended
May 31,

 

 

 

(in millions)

 

2022

 

 

2021

 

 

Financial Statement Caption

(Gain) loss on derivative financial instruments:

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

0.5

 

 

$

0.5

 

 

Revenue and Cost of revenue

Interest rate swap contracts

 

 

1.7

 

 

 

1.3

 

 

Interest and foreign exchange

 

 

 

2.2

 

 

 

1.8

 

 

Total before tax

 

 

 

(0.7

)

 

 

(0.4

)

 

Income tax expense

 

 

$

1.5

 

 

$

1.4

 

 

Net of tax

1415


 

 

Nine Months Ended
May 31,

 

 

 

(in millions)

 

2022

 

 

2021

 

 

Financial Statement Caption

(Gain) loss on derivative financial instruments:

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

0.9

 

 

$

1.2

 

 

Revenue and Cost of revenue

Interest rate swap contracts

 

 

4.3

 

 

 

3.9

 

 

Interest and foreign exchange

 

 

 

5.2

 

 

 

5.1

 

 

Total before tax

 

 

 

(1.4

)

 

 

(1.2

)

 

Income tax expense

 

 

$

3.8

 

 

$

3.9

 

 

Net of tax

Note 910 – Earnings (Loss) Per Share

The shares used in the computation of basic and diluted earnings (loss) per common share are reconciled as follows:

 

Three Months Ended
November 30,

 

(In thousands)

2021

 

 

2020

 

Weighted average basic common shares outstanding (1)

 

32,510

 

 

 

32,723

 

Dilutive effect of 2.875% convertible notes due 2024 (2) (3)

 

 

 

 

 

Dilutive effect of 2.875% convertible notes due 2028 (4)

 

 

 

 N/A

 

Dilutive effect of 2.25% convertible notes due 2024 (2) (5)

 N/A

 

 

 

 

Dilutive effect of restricted stock units (2) (6)

 

1,060

 

 

 

 

Weighted average diluted common shares outstanding

 

33,570

 

 

 

32,723

 

 

Three Months Ended
May 31,

 

 

Nine Months Ended
May 31,

 

(In thousands)

2022

 

 

2021

 

 

2022

 

 

2021

 

Weighted average basic common shares outstanding (1)

 

32,588

 

 

 

32,573

 

 

 

32,560

 

 

 

32,726

 

Dilutive effect of 2.875% convertible notes due 2024 (2) (3)

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of 2.875% convertible notes due 2028 (4)

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of 2.25% convertible notes due 2024 (2) (5)

N/A

 

 

 

 

 

N/A

 

 

 

 

Dilutive effect of restricted stock units (2) (6)

 

1,073

 

 

 

1,032

 

 

 

1,066

 

 

 

1,021

 

Weighted average diluted common shares outstanding

 

33,661

 

 

 

33,605

 

 

 

33,626

 

 

 

33,747

 

(1) Restricted stock grants and restricted stock units that are considered participating securities, including some grants subject to certain performance criteria, are included in weighted average basic common shares outstanding when the Company is in a net earnings position.

(2) The dilutive effect of common stock equivalents was excluded from the share calculation for the three and nine months ended November 30, 2020 due to a net loss.

May 31, 2021 as the average stock price was less than the applicable conversion price and therefore was anti-dilutive under previous applicable guidance. See further discussion below.

(3) The dilutive effect of the 2.875% Convertible notes due 2024 was excluded for the three and nine months ended November 30, 2021May 31, 2022 as they were considered anti-dilutive under the “if converted” method as further discussed below.

(4) The dilutive effect of the 2.875% Convertible notes due 2028 was excluded for the three and nine months ended November 30, 2021May 31, 2022 as the average stock price was less than the applicable conversion price and therefore was considered anti-dilutive. As these notes require cash settlement for the principal, only thea premium is potentially dilutive under the "if converted" method as further discussed below. These convertible notes were issued in April 2021.

(5) The 2.25% Convertible notes due 2024 were retired in April 2021.

(6) Restricted stock units that are not considered participating securities and restricted stock units subject to performance criteria, for which actual levels of performance above target have been achieved, are included in weighted average diluted common shares outstanding when the Company is in a net earnings position.

Basic earnings per common share (EPS) is computed by dividing Net earnings attributable to Greenbrier by weighted average basic common shares outstanding, which includes restricted stock grants and restricted stock units that are considered participating securities when the Company is in a net earnings position.

The Company's approach for calculating diluted EPS was modified beginning September 1, 2021 upon the adoption of Accounting Standard Update 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. See Note 1 - Interim Financial Statements for additional information.

For the three and nine months ended November 30, 2021,May 31, 2022, diluted EPS was calculated using the more dilutive of two methods. The first method includes the dilutive effect, using the treasury stock method, associated with restricted stock units that are not considered participating securities and performance based restricted stock units subject to performance criteria, for which actual levels of performance above target have been achieved. The second method supplements the first by also including the “if converted” effect of the 2.875% Convertible notes due 2024 and shares underlying the 2.875% Convertible notes due 2028, when there is a conversion premium. Under the “if converted” method, debt issuance and interest costs, both net of tax, associated with the convertible notes due 2024 are added back to net earnings and the share count is increased by the shares underlying the convertible notes.

1516


For the three and nine months ended November 30, 2020,May 31, 2021, diluted EPS was calculated using the treasury stock method associated with shares underlying the 2.875% Convertible notes due 2024, 2.25% convertible notes due 2024, restricted stock units that are not considered participating securities and performance based restricted stock units subject to performance criteria, for which actual levels of performance above target have been achieved. The dilutive effect of common stock equivalents was excluded from the share calculation for the three months ended November 30, 2020 due to a net loss.

 

Three Months Ended
November 30,

 

Three Months Ended
May 31,

 

 

Nine Months Ended
May 31,

 

(in millions, except shares which are reflected in thousands, and per share amounts)

 

2021

 

 

2020

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net earnings (loss) attributable to Greenbrier

 

$

10.8

 

$

(10.0

)

Net earnings attributable to Greenbrier

$

3.1

 

 

$

19.7

 

 

$

26.7

 

 

$

0.7

 

Weighted average basic common shares outstanding

 

32,588

 

 

 

32,573

 

 

 

32,560

 

 

 

32,726

 

Basic earnings per share

$

0.10

 

 

$

0.61

 

 

$

0.82

 

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to Greenbrier

$

3.1

 

 

$

19.7

 

 

$

26.7

 

 

$

0.7

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

Interest and debt issuance costs on the 2.875%
convertible notes due 2024, net of tax

n/a

 

 

n/a

 

 

n/a

 

 

n/a

 

Earnings before interest and debt issuance costs
on the
2.875% convertible notes due 2024

n/a

 

 

n/a

 

 

n/a

 

 

n/a

 

Weighted average diluted common shares outstanding

 

33,570

 

32,723

 

 

33,661

 

 

 

33,605

 

 

 

33,626

 

 

 

33,747

 

Diluted earnings (loss) per share

 

$

0.32

 

$

(0.30

)

Diluted earnings per share

$

0.09

 

 

$

0.59

 

 

$

0.79

 

 

$

0.02

 

Note 1011 – Stock Based Compensation

The value of stock based compensation awards is amortized as compensation expense from the date of grant through the earlier of the vesting period or in some instances the recipient’s eligible retirement date. Stock based compensation expense consists of restricted stock unit awards.

Stock based compensation expense was $1.15.0 million and $4.410.9 million for the three and nine months ended November 30,May 31, 2022, respectively and $3.5 million and $12.5 million for the three and nine months ended May 31, 2021, and 2020, respectively. Compensation expense is recorded in Selling and administrative expense and Cost of revenue on the Consolidated Statements of Operations.Income.

Note 1112 – Derivative Instruments

Foreign operations give rise to market risks from changes in foreign currency exchange rates. Foreign currency forward exchange contracts with established financial institutions are utilized to hedge a portion of that risk. Interest rate swap agreements are used to reduce the impact of changes in interest rates on certain current and probable future debt. The Company’s foreign currency forward exchange contracts and interest rate swap agreements are designated as cash flow hedges, and therefore the effective portion of unrealized gains and losses is recorded in accumulated other comprehensive income or loss.

At November 30, 2021May 31, 2022 exchange rates, notional amounts of forward exchange contracts for the purchase of Polish Zlotys and the sale of Euros; and the purchase of Mexican Pesos and the sale of U.S. Dollars aggregated to $120.9100.3 million. The fair value of the contracts is included on the Consolidated Balance Sheets as Accounts payable and accrued liabilities when in a loss position, or as Accounts receivable, net when in a gain position. As the contracts mature at various dates through October 2023, any such gain or loss remaining will be recognized in manufacturing revenue or cost of revenue along with the related transactions. In the event that the underlying transaction does not occur or does not occur in the period designated at the inception of the hedge, the amount classified in accumulated other comprehensive loss would be reclassified to the results of operations in Interest and foreign exchange at the time of occurrence. At November 30, 2021May 31, 2022 exchange rates, approximately $5.42.6 million would be reclassified to revenue or cost of revenue in the next year.

At November 30, 2021, anMay 31, 2022, interest rate swap agreementagreements maturing infrom September 2023 had a notional amount of $99.4 million and an interest rate swap agreement maturingthrough June 2024January 2032 had a notional amount ofamounts that aggregated to $135.0408.2 million. The fair value of the contracts is included on the Consolidated Balance Sheets in Accounts payable and accrued liabilities when in a loss position, or in Accounts receivable, net when in a gain position. As interest expense on the underlying debt is recognized, amounts corresponding to the interest rate

17


swap are reclassified from Accumulated other comprehensive loss and charged or credited to interest expense. At November 30, 2021May 31, 2022 interest rates, approximately $4.50.8 million would be reclassified to interest expense in the next year.

16


Fair Values of Derivative Instruments

(in millions)

 

Asset Derivatives

 

 

Liability Derivatives

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

 

November 30,
2021

 

 

August 31,
2021

 

 

 

November 30,
2021

 

 

August 31,
2021

 

 

 

 

May 31,
2022

 

 

August 31,
2021

 

 

May 31,
2022

 

 

August 31,
2021

 

 

Balance sheet location

 

Fair Value

 

 

Fair Value

 

 

Balance sheet location

 

Fair Value

 

 

Fair Value

 

 

Balance sheet location

 

Fair Value

 

 

Fair Value

 

 

Balance sheet location

 

Fair Value

 

 

Fair Value

 

Derivatives designated
as hedging
instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign forward
exchange contracts

 

Accounts receivable,
  net

 

$

 

$

0.1

 

Accounts payable and
  accrued liabilities

 

$

5.7

 

$

0.3

 

 

Accounts receivable,
  net

 

$

1.2

 

 

$

0.1

 

 

Accounts payable and
  accrued liabilities

 

$

2.3

 

 

$

0.3

 

Interest rate swap
contracts

 

Accounts receivable,
  net

 

 

 

 

 

Accounts payable and
  accrued liabilities

 

 

7.1

 

 

10.0

 

 

Accounts receivable,
  net

 

 

12.4

 

 

 

 

 

Accounts payable and
  accrued liabilities

 

 

0.6

 

 

 

10.0

 

 

 

 

$

 

$

0.1

 

 

 

$

12.8

 

$

10.3

 

 

 

 

$

13.6

 

 

$

0.1

 

 

 

 

$

2.9

 

 

$

10.3

 

Derivatives not
designated as
hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign forward
exchange contracts

 

Accounts receivable,
  net

 

$

 

$

 

Accounts payable and
  accrued liabilities

 

$

0.1

 

$

0.1

 

 

Accounts receivable,
  net

 

$

 

 

$

 

 

Accounts payable and
  accrued liabilities

 

$

 

 

$

0.1

 

The Effect of Derivative Instruments on the Statements of OperationsIncome

(in millions)

Three Months Ended May 31, 2022 and 2021

Derivatives in cash flow hedging relationships

 

Location of gain (loss)
recognized in income
on derivatives

 

Gain (loss) recognized in income on
derivatives three months ended November 30,

 

 

 

 

 

2021

 

 

2020

 

Foreign forward exchange contract

 

Interest and foreign exchange

 

$

(0.3

)

 

$

(0.1

)

Derivatives in
cash flow hedging
relationships

Gain (loss) recognized
in OCI on derivatives
three months ended November 30,

 

Location of gain
(loss) reclassified
from accumulated
OCI into income

Gain (loss) reclassified
from accumulated OCI
into income three months
ended November 30,

 

Location of gain
(loss) on derivative
(amount
excluded from
effectiveness
testing)

Gain (loss) recognized
on derivative
(amount excluded from
effectiveness testing)
three months ended November 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Foreign
   forward
   exchange
   contracts

$

(4.6

)

 

$

(1.0

)

Revenue

$

(0.2

)

 

$

(0.3

)

Revenue

$

0.2

 

 

$

0.1

 

Foreign
   forward
   exchange
   contracts

 

(1.3

)

 

 

 

Cost of
   revenue

 

 

 

 

 

Cost of
   revenue

 

0.1

 

 

 

 

Interest rate
   swap
   contracts

 

1.7

 

 

 

0.3

 

Interest and
   foreign
   exchange

 

(1.3

)

 

 

(1.3

)

Interest and
   foreign
   exchange

 

 

 

 

 

 

$

(4.2

)

 

$

(0.7

)

 

$

(1.5

)

 

$

(1.6

)

 

$

0.3

 

 

$

0.1

 

Derivatives in cash flow hedging relationships

 

Location of gain (loss)
recognized in income
on derivatives

 

Gain (loss) recognized in income on
derivatives three months ended May 31,

 

 

 

 

 

2022

 

 

2021

 

Foreign forward exchange contract

 

Interest and foreign exchange

 

$

0.2

 

 

$

0.1

 

Derivatives in
cash flow hedging
relationships

Gain (loss) recognized
in OCI on derivatives
three months ended May 31,

 

Location of gain
(loss) reclassified
from accumulated
OCI into income

Gain (loss) reclassified
from accumulated OCI
into income three months
ended May 31,

 

Location of gain
(loss) on derivative
(amount
excluded from
effectiveness
testing)

Gain (loss) recognized
on derivative
(amount excluded from
effectiveness testing)
three months ended May 31,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Foreign
   forward
   exchange
   contracts

$

1.5

 

 

$

0.5

 

Revenue

$

(0.6

)

 

$

(0.5

)

Revenue

$

0.3

 

 

$

0.2

 

Foreign
   forward
   exchange
   contracts

 

0.8

 

 

 

0.3

 

Cost of
   revenue

 

0.1

 

 

 

 

Cost of
   revenue

 

0.2

 

 

 

 

Interest rate
   swap
   contracts

 

15.2

 

 

 

(0.5

)

Interest and
   foreign
   exchange

 

(1.7

)

 

 

(1.3

)

Interest and
   foreign
   exchange

 

 

 

 

 

 

$

17.5

 

 

$

0.3

 

 

$

(2.2

)

 

$

(1.8

)

 

$

0.5

 

 

$

0.2

 

18


The following table presents the amounts in the Consolidated Statements of OperationsIncome in which the effects of the cash flow hedges are recorded and the effects of the cash flow hedge activity on these line items for the three months ended November 30, 2021May 31, 2022 and 2020:2021:

17

 

 

For The Three Months Ended May 31,

 

 

 

2022

 

 

2021

 

 

 

Total

 

 

Amount of gain
(loss) on cash
flow hedge
activity

 

 

Total

 

 

Amount of gain
(loss) on cash
flow hedge
activity

 

Revenue

 

$

793.5

 

 

$

(0.6

)

 

$

450.2

 

 

$

(0.5

)

Cost of revenue

 

$

717.2

 

 

$

0.1

 

 

$

375.0

 

 

$

 

Interest and foreign exchange

 

$

14.9

 

 

$

(1.7

)

 

$

10.2

 

 

$

(1.3

)

Nine Months Ended May 31, 2022 and 2021

Derivatives in cash flow hedging relationships

 

Location of gain (loss)
recognized in income
on derivatives

 

Gain (loss) recognized in income on
derivatives nine months ended May 31,

 

 

 

 

 

2022

 

 

2021

 

Foreign forward exchange contract

 

Interest and foreign exchange

 

$

(0.2

)

 

$

 

Derivatives in
cash flow hedging
relationships

 

Gain (loss) recognized
in OCI on derivatives
nine months ended May 31,

 

 

Location of gain
(loss) reclassified
from accumulated
OCI into income

 

Gain (loss) reclassified
from accumulated OCI
into income nine months
ended May 31,

 

 

Location of gain
(loss) on derivative
(amount
excluded from
effectiveness
testing)

 

Gain (loss) recognized
on derivative
(amount excluded from
effectiveness testing)
nine months ended May 31,

 

 

 

2022

 

 

2021

 

 

 

 

2022

 

 

2021

 

 

 

 

2022

 

 

2021

 

Foreign
   forward
   exchange
   contracts

 

$

(3.5

)

 

$

(1.1

)

 

Revenue

 

$

(1.0

)

 

$

(1.1

)

 

Revenue

 

$

0.8

 

 

$

0.5

 

Foreign
   forward
   exchange
   contracts

 

 

0.9

 

 

 

 

 

Cost of
   revenue

 

 

0.1

 

 

 

(0.1

)

 

Cost of
   revenue

 

 

0.6

 

 

 

0.1

 

Interest rate
   swap
   contracts

 

 

17.5

 

 

 

0.6

 

 

Interest and
   foreign
   exchange

 

 

(4.3

)

 

 

(3.9

)

 

Interest and
   foreign
   exchange

 

 

 

 

 

 

 

 

$

14.9

 

 

$

(0.5

)

 

 

 

$

(5.2

)

 

$

(5.1

)

 

 

 

$

1.4

 

 

$

0.6

 

 

 

For The Nine Months Ended May 31,

 

 

 

2022

 

 

2021

 

 

 

Total

 

 

Amount of gain
(loss) on cash
flow hedge
activity

 

 

Total

 

 

Amount of gain
(loss) on cash
flow hedge
activity

 

Revenue

 

$

2,027.0

 

 

$

(1.0

)

 

$

1,148.8

 

 

$

(1.1

)

Cost of revenue

 

$

1,848.3

 

 

$

0.1

 

 

$

1,015.3

 

 

$

(0.1

)

Interest and foreign exchange

 

$

39.3

 

 

$

(4.3

)

 

$

30.9

 

 

$

(3.9

)

19


 

 

For The Three Months Ended November 30,

 

 

 

2021

 

 

2020

 

 

 

Total

 

 

Amount of gain
(loss) on cash
flow hedge
activity

 

 

Total

 

 

Amount of gain
(loss) on cash
flow hedge
activity

 

Revenue

 

$

550.7

 

 

$

(0.2

)

 

$

403.0

 

 

$

(0.3

)

Cost of revenue

 

$

503.1

 

 

$

 

 

$

362.3

 

 

$

 

Interest and foreign exchange

 

$

12.6

 

 

$

(1.3

)

 

$

11.1

 

 

$

(1.3

)

Note 1213 – Segment Information

The Company operates in 3 reportable segments: Manufacturing; Maintenance Services; and Leasing & Management Services.

The accounting policies of the segments are described in the summary of significant accounting policies in the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended August 31, 2021. Performance is evaluated based on Earnings (loss) from operations. Corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. The Company does not allocate Interest and foreign exchange or Income tax (expense) benefit (expense) for either external or internal reporting purposes. Intersegment sales and transfers are valued as if the sales or transfers were to third parties. Related revenue and margin are eliminated in consolidation and therefore are not included in consolidated results in the Company’s Consolidated Financial Statements.

In the first quarter of 2022 the Company renamed two of its reportable segments to more prominently display the nature of the customer solutions it provides and markets in which it operates. The new names of its reportable segments are Manufacturing (unchanged), Maintenance Services (previously Wheels, Repair & Parts), and Leasing & Management Services (previously Leasing & Services). The name changes have no impact on the organization’s reporting structure nor on financial information previously reported. However,Separately, effective September 1, 2021, the Company also changed its measurement basis for allocating syndication revenue between the Manufacturing and Leasing & Management Services reportable segments. This change in measurement reflects the information currently used by management to assess the Company's operating performance in accordance with its refined leasing strategy and has no impact to the Company’s total consolidated revenue. Segment results for the prior periods have been recast to conform to the current period presentation.

The information in the following table is derived directly from the segments’ internal financial reports used for corporate management purposes.

For the three months ended November 30, 2021:May 31, 2022:

 

Revenue

 

 

Earnings (loss) from operations

 

 

Revenue

 

 

Earnings (loss) from operations

 

(in millions)

 

External

 

 

Intersegment

 

 

Total

 

 

External

 

 

Intersegment

 

 

Total

 

 

External

 

 

Intersegment

 

 

Total

 

 

External

 

 

Intersegment

 

 

Total

 

Manufacturing

 

$

452.5

 

$

39.4

 

$

491.9

 

$

12.3

 

$

0.3

 

$

12.6

 

 

$

650.9

 

 

$

38.3

 

 

$

689.2

 

 

$

20.5

 

 

$

1.8

 

 

$

22.3

 

Maintenance Services

 

72.4

 

2.7

 

75.1

 

(1.1

)

 

 

(1.1

)

 

 

101.5

 

 

 

8.6

 

 

 

110.1

 

 

 

8.6

 

 

 

 

 

 

8.6

 

Leasing & Management Services

 

25.8

 

0.3

 

26.1

 

17.2

 

 

17.2

 

 

 

41.1

 

 

 

0.6

 

 

 

41.7

 

 

 

19.2

 

 

 

0.1

 

 

 

19.3

 

Eliminations

 

 

(42.4

)

 

(42.4

)

 

 

(0.3

)

 

(0.3

)

 

 

 

 

 

(47.5

)

 

 

(47.5

)

 

 

 

 

 

(1.9

)

 

 

(1.9

)

Corporate

 

 

 

 

 

 

 

 

(16.6

)

 

 

 

 

(16.6

)

 

 

 

 

 

 

 

 

 

 

 

(28.7

)

 

 

 

 

 

(28.7

)

 

$

550.7

 

$

 

$

550.7

 

$

11.8

 

$

 

$

11.8

 

 

$

793.5

 

 

$

 

 

$

793.5

 

 

$

19.6

 

 

$

 

 

$

19.6

 

For the nine months ended May 31, 2022:

 

 

Revenue

 

 

Earnings (loss) from operations

 

(in millions)

 

External

 

 

Intersegment

 

 

Total

 

 

External

 

 

Intersegment

 

 

Total

 

Manufacturing

 

$

1,659.1

 

 

$

79.5

 

 

$

1,738.6

 

 

$

34.6

 

 

$

2.1

 

 

$

36.7

 

Maintenance Services

 

 

260.5

 

 

 

17.4

 

 

 

277.9

 

 

 

10.4

 

 

 

 

 

 

10.4

 

Leasing & Management Services

 

 

107.4

 

 

 

1.3

 

 

 

108.7

 

 

 

84.0

 

 

 

0.1

 

 

 

84.1

 

Eliminations

 

 

 

 

 

(98.2

)

 

 

(98.2

)

 

 

 

 

 

(2.2

)

 

 

(2.2

)

Corporate

 

 

 

 

 

 

 

 

 

 

 

(72.4

)

 

 

 

 

 

(72.4

)

 

 

$

2,027.0

 

 

$

 

 

$

2,027.0

 

 

$

56.6

 

 

$

 

 

$

56.6

 

18

20


For the three months ended November 30, 2020:May 31, 2021:

 

 

Revenue

 

 

Earnings (loss) from operations

 

(in millions)

 

External

 

 

Intersegment

 

 

Total

 

 

External

 

 

Intersegment

 

 

Total

 

Manufacturing

 

$

339.7

 

 

$

7.5

 

 

$

347.2

 

 

$

29.1

 

 

$

0.5

 

 

$

29.6

 

Maintenance Services

 

 

80.9

 

 

 

2.3

 

 

 

83.2

 

 

 

4.2

 

 

 

0.1

 

 

 

4.3

 

Leasing & Management Services

 

 

29.6

 

 

 

 

 

 

29.6

 

 

 

14.5

 

 

 

 

 

 

14.5

 

Eliminations

 

 

 

 

 

(9.8

)

 

 

(9.8

)

 

 

 

 

 

(0.6

)

 

 

(0.6

)

Corporate

 

 

 

 

 

 

 

 

 

 

 

(22.1

)

 

 

 

 

 

(22.1

)

 

 

$

450.2

 

 

$

 

 

$

450.2

 

 

$

25.7

 

 

$

 

 

$

25.7

 

For the nine months ended May 31, 2021:

 

 

Revenue

 

 

Earnings (loss) from operations

 

(in millions)

 

External

 

 

Intersegment

 

 

Total

 

 

External

 

 

Intersegment

 

 

Total

 

Manufacturing

 

$

304.5

 

 

$

20.6

 

 

$

325.1

 

 

$

5.4

 

 

$

2.5

 

 

$

7.9

 

Maintenance Services

 

 

65.6

 

 

 

0.3

 

 

 

65.9

 

 

 

(0.2

)

 

 

 

 

 

(0.2

)

Leasing & Management Services

 

 

32.9

 

 

 

0.4

 

 

 

33.3

 

 

 

10.1

 

 

 

 

 

 

10.1

 

Eliminations

 

 

 

 

 

(21.3

)

 

 

(21.3

)

 

 

 

 

 

(2.5

)

 

 

(2.5

)

Corporate

 

 

 

 

 

 

 

 

 

 

 

(17.4

)

 

 

 

 

 

(17.4

)

 

 

$

403.0

 

 

$

 

 

$

403.0

 

 

$

(2.1

)

 

$

 

 

$

(2.1

)

 

Total assets

 

 

Revenue

 

 

Earnings (loss) from operations

 

(in millions)

 

November 30,
2021

 

 

August 31,
2021

 

 

External

 

 

Intersegment

 

 

Total

 

 

External

 

 

Intersegment

 

 

Total

 

Manufacturing

 

$

1,550.3

 

$

1,493.5

 

 

$

845.7

 

 

$

30.5

 

 

$

876.2

 

 

$

16.7

 

 

$

3.1

 

 

$

19.8

 

Maintenance Services

 

261.5

 

260.9

 

 

 

218.1

 

 

 

4.2

 

 

 

222.3

 

 

 

6.4

 

 

 

0.1

 

 

 

6.5

 

Leasing & Management Services

 

1,219.9

 

949.4

 

 

 

85.0

 

 

 

1.0

 

 

 

86.0

 

 

 

31.7

 

 

 

0.1

 

 

 

31.8

 

Unallocated, including cash

 

 

438.3

 

 

686.9

 

Eliminations

 

 

 

 

 

(35.7

)

 

 

(35.7

)

 

 

 

 

 

(3.3

)

 

 

(3.3

)

Corporate

 

 

 

 

 

 

 

 

 

 

 

(56.9

)

 

 

 

 

 

(56.9

)

 

$

3,470.0

 

$

3,390.7

 

 

$

1,148.8

 

 

$

 

 

$

1,148.8

 

 

$

(2.1

)

 

$

 

 

$

(2.1

)

 

 

Total assets

 

(in millions)

 

May 31,
2022

 

 

August 31,
2021

 

Manufacturing

 

$

1,814.1

 

 

$

1,493.5

 

Maintenance Services

 

 

266.8

 

 

 

260.9

 

Leasing & Management Services

 

 

1,158.3

 

 

 

949.4

 

Unallocated, including cash

 

 

466.9

 

 

 

686.9

 

 

 

$

3,706.1

 

 

$

3,390.7

 

Reconciliation of Earnings (loss) from operations to LossEarnings (loss) before income tax and earnings (loss) from unconsolidated affiliates:

 

Three Months Ended
November 30,

 

 

Three Months Ended
May 31,

 

 

Nine Months Ended
May 31,

 

(in millions)

 

2021

 

 

2020

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Earnings (loss) from operations

 

$

11.8

 

$

(2.1

)

 

$

19.6

 

 

$

25.7

 

 

$

56.6

 

 

$

(2.1

)

Interest and foreign exchange

 

 

12.6

 

 

11.1

 

 

$

14.9

 

 

$

10.2

 

 

$

39.3

 

 

$

30.9

 

Loss before income tax and earnings (loss)
from unconsolidated affiliates

 

$

(0.8

)

 

$

(13.2

)

Net loss on extinguishment of debt

 

 

 

 

 

4.8

 

 

 

 

 

 

4.8

 

Earnings (loss) before income tax and
earnings from unconsolidated affiliates

 

$

4.7

 

 

$

10.7

 

 

$

17.3

 

 

$

(37.8

)

21


Note 1314 – Leases

Lessor

Equipment on operating leases is reported net of accumulated depreciation of $38.442.5 million and $34.4 million as of November 30, 2021May 31, 2022 and August 31, 2021, respectively. Depreciation expense was $5.15.5 million and $3.915.9 million for the three and nine months ended November 30,May 31, 2022 and $3.3 million and $10.1 million for the three and nine months ended May 31, 2021, and 2020, respectively. In addition, certain railcar equipment leased-in by the Company on operating leases is subleased to customers under non-cancelable operating leases with lease terms ranging from one to approximately fourteen years. Operating lease rental revenues included in the Company’s Statements of OperationsIncome for the three and nine months ended November 30, 2021 and 2020May 31, 2022 was $15.016.0 million and $11.847.3 million, respectively, which included $4.53.8 million and $3.612.3 million, respectively, of revenue as a result of daily, monthly or car hire utilization arrangements. Operating lease rental revenues included in the Company’s Statements of Income for the three and nine months ended May 31, 2021 was $8.0 million and $32.1 million, respectively, which included $2.8 million and $10.2 million, respectively, of revenue as a result of daily, monthly or car hire utilization arrangements.

Aggregate minimum future amounts receivable under all non-cancelable operating leases and subleases at November 30, 2021,May 31, 2022, will mature as follows:

(in millions)

 

 

 

Remaining nine months of 2022

 

$

29.6

 

2023

 

 

32.4

 

2024

 

 

26.0

 

2025

 

 

18.0

 

2026

 

 

14.7

 

Thereafter

 

 

32.3

 

 

 

$

153.0

 

19


(in millions)

 

 

 

Remaining three months of 2022

 

$

12.9

 

2023

 

 

36.0

 

2024

 

 

29.3

 

2025

 

 

22.4

 

2026

 

 

19.6

 

Thereafter

 

 

56.5

 

 

 

$

176.7

 

Lessee

The Company leases railcars, real estate, and certain equipment under operating and, to a lesser extent, finance lease arrangements. As of and for the three and nine months ended November 30,May 31, 2022 and 2021, and 2020, finance leases were not a material component of the Company's lease portfolio. The Company’s real estate and equipment leases have remaining lease terms ranging from less than one year to 7776 years, with some including options to extend up to 15 years. The Company recognizes a lease liability and corresponding right-of-use (ROU) asset based on the present value of lease payments. To determine the present value of lease payments, as most of its leases do not provide a readily determinable implicit rate, the Company’s incremental borrowing rate is used to discount the lease payments based on information available at lease commencement date. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when estimating its incremental borrowing rate.

The components of operating lease costs were as follows:

 

 

Three Months Ended
November 30,

 

 

Three Months Ended
May 31,

 

 

Nine Months Ended
May 31,

 

(in millions)

 

2021

 

 

2020

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating lease expense

 

$

2.7

 

 

$

3.8

 

 

$

2.7

 

 

$

2.9

 

 

$

7.9

 

 

$

10.4

 

Short-term lease expense

 

 

1.2

 

 

 

1.3

 

 

 

1.1

 

 

 

1.0

 

 

 

3.8

 

 

 

3.6

 

Total

 

$

3.9

 

 

$

5.1

 

 

$

3.8

 

 

$

3.9

 

 

$

11.7

 

 

$

14.0

 

22


Aggregate minimum future amounts payable under operating leases having initial or remaining non-cancelable terms at November 30, 2021May 31, 2022 will mature as follows:

(in millions)

 

 

 

 

 

 

Remaining nine months of 2022

 

$

8.0

 

Remaining three months of 2022

 

$

2.6

 

2023

 

9.9

 

 

 

10.4

 

2024

 

8.7

 

 

 

9.1

 

2025

 

6.1

 

 

 

6.4

 

2026

 

4.9

 

 

 

5.1

 

Thereafter

 

 

12.9

 

 

 

12.7

 

Total lease payments

 

$

50.5

 

 

$

46.3

 

Less: Imputed interest

 

 

(5.5

)

 

 

(4.6

)

Total lease obligations

 

$

45.0

 

 

$

41.7

 

The table below presents additional information related to the Company’s leases:

Weighted average remaining lease term:

Operating leases

12.312.2 Years

 

Weighted average discount rate:

Operating leases

2.92.7

%

20


Supplemental cash flow information related to leases were as follows:

(in millions)

 

Three months ended
November 30,
2021

 

 

Nine months ended
May 31, 2022

 

Cash paid for amounts included in the measurement
of lease liabilities:

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

2.8

 

 

$

8.6

 

ROU assets obtained in exchange for new operating
lease liabilities

 

$

5.1

 

 

$

6.9

 

ROU assets disposed of for lease terminations

 

$

-

 

Note 1415 – Commitments and Contingencies

Portland Harbor Superfund Site

The Company’s Portland, Oregon manufacturing facility (the Portland Property) is located adjacent to the Willamette River. In December 2000, the U.S. Environmental Protection Agency (EPA) classified portions of the Willamette River bed known as the Portland Harbor, including the portion fronting the Company’s manufacturing facility, as a federal "National Priority List" or "Superfund" site due to sediment contamination (the Portland Harbor Site). The Company and more than 140 other parties have received a "General Notice" of potential liability from the EPA relating to the Portland Harbor Site. The letter advised the Company that it may be liable for the costs of investigation and remediation (which liability may be joint and several with other potentially responsible parties) as well as for natural resource damages resulting from releases of hazardous substances to the site. Ten private and public entities, including the Company (the Lower Willamette Group or LWG), signed an Administrative Order on Consent (AOC) to perform a remedial investigation/feasibility study (RI/FS) of the Portland Harbor Site under EPA oversight, and several additional entities did not sign such consent, but nevertheless contributed financially to the effort. The EPA-mandated RI/FS was produced by the LWG and cost over $110 million during a 17-year period. The Company bore a percentage of the total costs incurred by the LWG in connection with the investigation. The Company’s aggregate expenditure during the 17-year period was not material. Some or all of any such outlay may be recoverable from other responsible parties. The EPA issued its Record of Decision (ROD) for the Portland Harbor Site on January 6, 2017 and accordingly on October 26, 2017, the AOC was terminated.

23


Separate from the process described above, which focused on the type of remediation to be performed at the Portland Harbor Site and the schedule for such remediation, 83 parties, including the State of Oregon and the federal government, entered into a non-judicial mediation process to try to allocate costs associated with remediation of the Portland Harbor Site. Approximately 110 additional parties signed tolling agreements related to such allocations. On April 23, 2009, the Company and the other AOC signatories filed suit against 69 other parties due to a possible limitations period for some such claims; Arkema Inc. et al v. A & C Foundry Products, Inc. et al, U.S. District Court, District of Oregon, Case #3:09-cv-453-PK. All but 12 of these parties elected to sign tolling agreements and be dismissed without prejudice, and the case has been stayed by the court until January 14, 2022.2025.

The EPA's January 6, 2017 ROD identifies a clean-up remedy that the EPA estimates will take 13 years of active remediation, followed by 30 years of monitoring with an estimated undiscounted cost of $1.7 billion. The EPA typically expects its cost estimates to be accurate within a range of -30% to +50%, but this ROD states that changes in costs are likely to occur as a result of new data collected over a 2-year period prior to final remedy design. The EPA has identified 15 Sediment Decision Units within the ROD cleanup area. One of the units, RM9W, includes the nearshore area of the river sediments offshore of the Portland Property as well as downstream of the facility. It also includes a portion of the Company’s riverbank. The ROD does not break down total remediation costs by Sediment Decision Unit. The EPA's ROD concluded that more data was needed to better define clean-up scope and cost. On December 19, 2017, the EPA announced that it had entered a new AOC with a group of four potentially responsible parties to conduct additional sampling during 2018 and 2019 to provide more certainty about clean-up costs and aid the mediation process to allocate those costs. The parties to the mediation, including the Company, agreed to help fund the additional sampling, which is now complete. The EPA requested that potentially responsible parties enter AOCs during 2019 agreeing to conduct remedial design studies. Some parties have signed AOCs, including one party with respect to RM9W which includes the area offshore of the Company’s manufacturing facility. The Company has

21


not signed an AOC in connection with remedial design, but will potentially be directly or indirectly responsible forassist in conducting or funding a portion of suchthe RM9W remedial design. The allocation process is continuing in parallel with the process to define the remedial design.

The ROD does not address responsibility for the costs of clean-up, nor does it allocate such costs among the potentially responsible parties. Responsibility for funding and implementing the EPA's selected cleanup remedy will be determined at an unspecified later date. Based on the investigation to date, the Company believes that it did not contribute in any material way to contaminants of concern in the river sediments or the damage of natural resources in the Portland Harbor Site and that the damage in the area of the Portland Harbor Site adjacent to its property precedes the Company’s ownership of the Portland Property. Because these environmental investigations are still underway, sufficient information is currently not available to determine the Company’s liability, if any, for the cost of any required remediation or restoration of the Portland Harbor Site or to estimate a range of potential loss. Based on the results of the pending investigations and future assessments of natural resource damages, the Company may be required to incur costs associated with additional phases of investigation or remedial action, and may be liable for damages to natural resources. In addition, the Company may be required to perform periodic maintenance dredging in order to continue to launch vessels from its launch ways in Portland, Oregon, on the Willamette River, and the river's classification as a Superfund site could result in some limitations on future dredging and launch activities. Any of these matters could adversely affect the Company’s business and Consolidated Financial Statements, or the value of the Portland Property.

On January 30, 2017 the Confederated Tribes and Bands of Yakama Nation sued 33 parties including the Company as well as the U.S. and the State of Oregon for costs it incurred in assessing alleged natural resource damages to the Columbia River from contaminants deposited in Portland Harbor. Confederated Tribes and Bands of the Yakama Nation v. Air Liquide America Corp., et al., U.S. Court for the District of Oregon Case No. 3i17-CV-00164-SB. The complaint does not specify the amount of damages the plaintiff will seek. The case has been stayed until January 14, 2022.2025.

24


Oregon Department of Environmental Quality (DEQ) Regulation of Portland Manufacturing Operations

The Company entered into a Voluntary Cleanup Agreement with the Oregon Department of Environmental Quality (DEQ) in which the Company agreed to conduct an investigation of whether, and to what extent, past or present operations at the Portland Property may have released hazardous substances into the environment. The Company has also signed an Order on Consent with the DEQ to finalize the investigation of potential onsite sources of contamination that may have a release pathway to the Willamette River. Interim precautionary measures are also required in the order and the Company is discussing with the DEQ potential remedial actions which may be required. The Company’s aggregate expenditure has not been material, however it could incur significant expenses for remediation. Some or all of any such outlay may be recoverable from other responsible parties.

Other Litigation, Commitments and Contingencies

In connection with the acquisition of the manufacturing business of American Railcar Industries, Inc. (ARI), the Company agreed to assume potential legacy liabilities (known and unknown) related to railcars manufactured by ARI. Among these potential liabilities are certain retrofit and repair obligations arising from regulatory actions by the Federal Railroad Administration and the Association of American Railroads. In some cases, the seller shares with the Company the costs of these retrofit and repair obligations. The Company currently is not able to determine if any of these liabilities will have a material adverse impact on the Company’s Consolidated Financial Statements.

From time to time, Greenbrier is involved as a defendant in litigation in the ordinary course of business, the outcomes of which cannot be predicted with certainty. While the ultimate outcome of such legal proceedings cannot be determined at this time, the Company believes that the resolution of pending litigation will not have a material adverse effect on the Company's Consolidated Financial Statements.

As of November 30, 2021,May 31, 2022, the Company had outstanding letters of credit aggregating to $6.76.9 million associated with performance guarantees, facility leases and workers compensation insurance.

22


Note 1516 – Fair Value Measures

Certain assets and liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value, for this disclosure, is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

Level 1 - observable inputs such as unadjusted quoted prices in active markets for identical instruments;

Level 2 - inputs, other than the quoted market prices in active markets for similar instruments, which are observable, either directly or indirectly; and

Level 3 - unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value on a recurring basis as of November 30, 2021May 31, 2022 were:

(in millions)

 

Total

 

 

Level 1

 

 

Level 2 (1)

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

13.6

 

 

$

 

 

$

13.6

 

 

$

 

Nonqualified savings plan investments

 

 

44.2

 

 

 

44.2

 

 

 

 

 

 

 

Cash equivalents

 

 

109.1

 

 

 

109.1

 

 

 

 

 

 

 

 

 

$

166.9

 

 

$

153.3

 

 

$

13.6

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

2.9

 

 

$

 

 

$

2.9

 

 

$

 

25

(in millions)

 

Total

 

 

Level 1

 

 

Level 2 (1)

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

 

$

 

 

$

 

 

$

 

Nonqualified savings plan investments

 

 

47.7

 

 

 

47.7

 

 

 

 

 

 

 

Cash equivalents

 

 

169.0

 

 

 

169.0

 

 

 

 

 

 

 

 

 

$

216.7

 

 

$

216.7

 

 

$

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

12.9

 

 

$

 

 

$

12.9

 

 

$

 


Assets and liabilities measured at fair value on a recurring basis as of August 31, 2021 were:

(in millions)

 

Total

 

 

Level 1

 

 

Level 2 (1)

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

0.1

 

 

$

 

 

$

0.1

 

 

$

 

Nonqualified savings plan investments

 

 

47.7

 

 

 

47.7

 

 

 

 

 

 

 

Cash equivalents

 

 

228.9

 

 

 

228.9

 

 

 

 

 

 

 

 

 

$

276.7

 

 

$

276.6

 

 

$

0.1

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

10.5

 

 

$

 

 

$

10.5

 

 

$

 

(1)
Level 2 assets and liabilities include derivative financial instruments that are valued based on observable inputs. See Note 1112 - Derivative Instruments for further discussion.

Note 1617 – Related Party Transactions

The Company has a 41.9% interest in Axis, LLC (Axis), a joint venture. The Company purchased $2.83.5 million and $3.89.7 million for the three and nine months ended May 31, 2022, respectively and $3.3 million and $10.0 million for the three and nine months ended May 31, 2021, respectively of railcar components from Axis for the three months ended November 30, 2021 and 2020, respectively.Axis.

2326


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

We operate in three reportable segments: Manufacturing; Maintenance Services; and Leasing & Management Services. Our segments are operationally integrated. The Manufacturing segment, which currently operates from facilities in the U.S., Mexico, Poland, Romania and Turkey, produces double-stack intermodal railcars, tank cars, conventional railcars, automotive railcar products and marine vessels. The Maintenance Services segment performs wheel and axle servicing, railcar maintenance and produces a variety of parts for the rail industry in North America. The Leasing & Management Services segment, which includes GBX Leasing, owns approximately 12,90011,800 railcars as of November 30, 2021.May 31, 2022. We also provide management services for approximately 443,000421,000 railcars for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America as of November 30, 2021.May 31, 2022. Through unconsolidated affiliates we produce rail and industrial components and have an ownership stake in a railcar manufacturer in Brazil.

In the first quarter of 2022, we renamed two of our reportable segments to more prominently display the nature of the customer solutions it provides and markets in which it operates. The new names of our reportable segments are Manufacturing (unchanged), Maintenance Services (previously Wheels, Repair & Parts), and Leasing & Management Services (previously Leasing & Services). The name changes have no impact on our organization’s reporting structure nor on financial information previously reported. However, effective September 1, 2021, we also changed our measurement basis for allocating syndication revenue between the Manufacturing and Leasing & Management Services reportable segments. This change in measurement reflects the information currently used by management to assess our operating performance in accordance with our refined leasing strategy and has no impact to our total consolidated revenue. Segment results for the prior periods have been recast to conform to the current period presentation.

We identify twothree general trends impacting our business at present, bothall of which we believe are reflected in theour results for the quarter just ended.nine months ended May 31, 2022. First, we believe the North American freight rail equipment market is beginningcontinues to emerge from the cyclical decrease in economic activity which began prior to the emergence of COVID-19. Second, we believe global economic activity continues to recover from the historic sharp dramatic decrease resulting from the COVID-19 pandemic. Third, inflation, rising interest rates, price volatility, supply chain disruptions and geopolitical disquiet, demand concerted management focus for successful execution across the business. While we believe the current market and broader economic environment most likely will present many positive opportunities for our business, as we navigate the recovery, we face a number of challenges which include:

An increase in the price and the shortage of certain materials and components;
Shipping and transportation delays;
Shortages of skilled labor;
RiskEffects of inflation and policy reactions thereto, currency volatility and increases in interest rates.

In February 2022, the Russian Federation commenced a military invasion of Ukraine. As a result of this action, various nations have instituted economic sanctions against the Russian Federation. The full extent of short and long-term implications of Russia’s invasion of Ukraine and related sanctions are difficult to predict at this time but may have an adverse effect on the global economic markets generally and could exacerbate the existing challenges noted above. Since the commencement of the military invasion of Ukraine, there has been an increase in the price of steel and a shortage of certain materials and components. We do not have operations in Ukraine or Russia.

As described in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q, Part I Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, 2021 and our subsequent Quarterly Reports on Form 10-Q, the items described above may have a material negative impact on our business, liquidity, results of operations and stock price. Beyond these general observations, we are unable to predict when, how, or with what magnitude these items will impact our business.

 

Our core strategy since March 2020 has been and continues to be to:

27


(1)

Maintain a strong liquidity base and balance sheet.

(2)

Continue efficient operations through the downturn, and now economic recovery, by safely operating our facilities while generating cash.
(3)
Prepare for emerging economic recovery and forward momentum in our markets. We are currently operating in this phase. We believe we have the management expertise and are well-positioned to navigate the immediate challenges of increasing production rates safely amidst the emerging COVID variants and geopolitical disquiet, while ensuringmanaging labor and supply chain continuity.

24


Despite the challenging operating environment, we achieved the following accomplishments during the first quarternine months of 2022 as we navigate the recovery phase:

Revenue increased by $147.7$878.2 million and 36.7%76.4% compared to the same quarterperiod last year driven by a 37.0%an 80.6% increase in railcar deliveries.
Obtained new railcar orders of 6,30019,800 units valued at approximately $0.7$2.3 billion during the threenine months ended November 30, 2021.May 31, 2022.
GrewIncreased our backlog to an estimated value of $2.98$3.6 billion as of November 30, 2021,May 31, 2022, which is theour highest level since the start of the COVID-19 pandemicbacklog value in early calendar 2020.6 years.
As announced on October 13,In February 2022, we completed our first offering of railcar asset-backed securities and long-term financing for GBX Leasing.
In September 2021, we acquired more than 3,600 railcars, a portion of which is held in GBX Leasing. The railcar acquisition advances our strategy to increase the scale of our lease fleet assets.
Increased our global headcount by approximately 30% during a challenging labor market to support higher levels of business activity.

Our backlog remains strong with railcar deliveries into 2024 and marine deliveries into 2023. Our railcar backlog was 28,00030,900 units with an estimated value of $2.98$3.6 billion as of November 30, 2021.May 31, 2022. Backlog units for lease may be syndicated to third parties or held in our lease fleet depending on a variety of factors. Multi-year supply agreements are a part of rail industry practice. A portion of the orders included in backlog reflects an assumed product mix. Under terms of the orders, the exact mix and pricing will be determined in the future, which may impact backlog. Approximately 7%4% of backlog units and 5% of estimated backlog value as of November 30, 2021May 31, 2022 was associated with our Brazilian manufacturing operations which is accounted for under the equity method. Marine backlog as of November 30, 2021May 31, 2022 was $61$41 million.

Our backlog of railcar units and marine vessels is not necessarily indicative of future results of operations. Certain orders in backlog are subject to customary documentation and completion of terms. Customers may attempt to cancel or modify orders in backlog. Historically, little variation has been experienced between the quantity ordered and the quantity actually delivered, though the timing of deliveries may be modified from time to time.

2528


Three Months Ended November 30, 2021May 31, 2022 Compared to the Three Months Ended November 30, 2020May 31, 2021

Overview

Revenue, Cost of revenue, Margin and Earnings (loss) from operations (operating profit or loss)profit) presented below, include amounts from external parties and exclude intersegment activity that is eliminated in consolidation.

 

Three Months Ended
November 30,

 

 

Three Months Ended
May 31,

 

(in millions, except per share amounts)

 

2021

 

 

2020

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Manufacturing

 

$

452.5

 

$

304.5

 

 

$

650.9

 

 

$

339.7

 

Maintenance Services

 

72.4

 

65.6

 

 

 

101.5

 

 

 

80.9

 

Leasing & Management Services

 

 

25.8

 

 

32.9

 

 

 

41.1

 

 

 

29.6

 

 

550.7

 

403.0

 

 

 

793.5

 

 

 

450.2

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

Manufacturing

 

421.6

 

280.9

 

 

 

611.3

 

 

 

292.4

 

Maintenance Services

 

71.2

 

63.0

 

 

 

91.1

 

 

 

73.7

 

Leasing & Management Services

 

 

10.3

 

 

18.4

 

 

 

14.8

 

 

 

8.9

 

 

503.1

 

362.3

 

 

 

717.2

 

 

 

375.0

 

Margin:

 

 

 

 

 

 

 

 

 

 

 

Manufacturing

 

30.9

 

23.6

 

 

 

39.6

 

 

 

47.3

 

Maintenance Services

 

1.2

 

2.6

 

 

 

10.4

 

 

 

7.2

 

Leasing & Management Services

 

 

15.5

 

 

14.5

 

 

 

26.3

 

 

 

20.7

 

 

47.6

 

40.7

 

 

 

76.3

 

 

 

75.2

 

Selling and administrative

 

44.3

 

43.7

 

 

 

57.4

 

 

 

49.3

 

Net gain on disposition of equipment

 

 

(8.5

)

 

 

(0.9

)

Earnings (loss) from operations

 

11.8

 

(2.1

)

Net (gain) loss on disposition of equipment

 

 

(0.7

)

 

 

0.2

 

Earnings from operations

 

 

19.6

 

 

 

25.7

 

Interest and foreign exchange

 

 

12.6

 

 

11.1

 

 

 

14.9

 

 

 

10.2

 

Loss before income taxes and earnings (loss) from
unconsolidated affiliates

 

(0.8

)

 

(13.2

)

Income tax benefit

 

 

1.4

 

 

7.3

 

Earnings (loss) before earnings (loss) from
unconsolidated affiliates

 

0.6

 

(5.9

)

Earnings (loss) from unconsolidated affiliates

 

 

5.0

 

 

(0.8

)

Net earnings (loss)

 

5.6

 

(6.7

)

Net (earnings) loss attributable to noncontrolling interest

 

 

5.2

 

 

(3.3

)

Net earnings (loss) attributable to Greenbrier

 

$

10.8

 

$

(10.0

)

Diluted earnings (loss) per common share

 

$

0.32

 

$

(0.30

)

Net loss on extinguishment of debt

 

 

 

 

 

4.8

 

Earnings before income taxes and earnings from unconsolidated affiliates

 

 

4.7

 

 

 

10.7

 

Income tax (expense) benefit

 

 

(1.1

)

 

 

6.9

 

Earnings before earnings from unconsolidated affiliates

 

 

3.6

 

 

 

17.6

 

Earnings from unconsolidated affiliates

 

 

4.0

 

 

 

2.4

 

Net earnings

 

 

7.6

 

 

 

20.0

 

Net earnings attributable to noncontrolling interest

 

 

(4.5

)

 

 

(0.3

)

Net earnings attributable to Greenbrier

 

$

3.1

 

 

$

19.7

 

Diluted earnings per common share

 

$

0.09

 

 

$

0.59

 

Performance for our segments is evaluated based on operating profit or loss. Corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. Management does not allocate Interest and foreign exchange or Income tax (expense) benefit for either external or internal reporting purposes.

 

Three Months Ended
November 30,

 

 

Three Months Ended
May 31,

 

(in millions)

 

2021

 

 

2020

 

 

2022

 

 

2021

 

Operating profit (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Manufacturing

 

$

12.3

 

$

5.4

 

 

$

20.5

 

 

$

29.1

 

Maintenance Services

 

(1.1

)

 

(0.2

)

 

 

8.6

 

 

 

4.2

 

Leasing & Management Services

 

17.2

 

10.1

 

 

 

19.2

 

 

 

14.5

 

Corporate

 

 

(16.6

)

 

 

(17.4

)

 

 

(28.7

)

 

 

(22.1

)

 

$

11.8

 

$

(2.1

)

 

$

19.6

 

 

$

25.7

 

2629


Consolidated Results

 

Three Months Ended
November 30,

 

Increase

 

%

 

 

Three Months Ended
May 31,

 

 

Increase

 

%

 

(in millions)

 

2021

 

 

2020

 

(Decrease)

 

Change

 

 

2022

 

 

2021

 

 

(Decrease)

 

 

Change

 

Revenue

 

$

550.7

 

$

403.0

 

$

147.7

 

36.7

%

 

$

793.5

 

 

$

450.2

 

 

$

343.3

 

 

 

76.3

%

Cost of revenue

 

$

503.1

 

$

362.3

 

$

140.8

 

38.9

%

 

$

717.2

 

 

$

375.0

 

 

$

342.2

 

 

 

91.3

%

Margin (%)

 

8.6

%

 

10.1

%

 

(1.5

%)

 

*

 

 

 

9.6

%

 

 

16.7

%

 

 

(7.1

%)

 

*

 

Net earnings (loss) attributable to Greenbrier

 

$

10.8

 

$

(10.0

)

 

$

20.8

 

*

 

Net earnings attributable to Greenbrier

 

$

3.1

 

 

$

19.7

 

 

$

(16.6

)

 

 

(84.3

%)

* Not meaningful

Through our integrated business model, we provide a broad range of custom products and services in each of our segments, which have various average selling prices and margins. The demand for and mix of products and services delivered changes from period to period, which causes fluctuations in our results of operations.

The 36.7%76.3% increase in revenue for the three months ended November 30, 2021May 31, 2022 as compared to the three months ended November 30, 2020May 31, 2021 was primarily due to a 48.6%91.6% increase in Manufacturing revenue. The increase in Manufacturing revenue was primarily attributed to a 37.0%75.0% increase in railcar deliveries.

The 38.9%91.3% increase in cost of revenue for the three months ended November 30, 2021May 31, 2022 as compared to the three months ended November 30, 2020May 31, 2021 was primarily due to a 50.1%109.1% increase in Manufacturing cost of revenue. The increase in Manufacturing cost of revenue was primarily attributed to a 37.0%75.0% increase in railcar deliveries and higher steel and other input costs during the three months ended November 30, 2021.May 31, 2022.

Margin as a percentage of revenue was 8.6%9.6% and 10.1%16.7% for the three months ended November 30,May 31, 2022 and 2021, and 2020, respectively. The overall margin as a percentage of revenue was negatively impacted by a decrease in Manufacturing margin from 7.8%13.9% to 6.8%. The decrease in Manufacturing margin percentage for the three months ended November 30, 2021 was6.1% primarily attributed to higher steel and other input costs and a changeinefficiencies in product mix. In addition, manyour Manufacturing operations in part due to ramping up production. Many of our customer contracts include price escalation provisions. When certain of our manufacturing costs increase, we are able to increase the sales price to our customers. While this has no impact to our margin dollars, the increase in revenue and cost of sales has a negative impact to our margin as a percentage of revenue. The decrease in Manufacturing margin percentage was partially offset by an increase in Leasing & Management Service margin from 44.1% to 60.1%. Leasing & Management Service margin as a percentage of revenue for the three months ended November 30, 2020 was negatively impacted by higher sales of railcars that we purchased from third parties which have lower margin percentages.

Net earnings attributable to Greenbrier is impacted by our operating activities and noncontrolling interest primarily associated with our 50% joint ventures at certain of our Mexican railcar manufacturing facilities and our 75% interest in Greenbrier-Astra Rail, each of which we consolidate for financial reporting purposes. The $20.8$16.6 million increasedecrease in net earnings attributable to Greenbrier for the three months ended November 30, 2021May 31, 2022 as compared to the three months ended November 30, 2020May 31, 2021 was primarily due to the following:

A net loss attributable to noncontrolling interestAn increase in Selling and administrative expense for the three months ended November 30, 2021. Net loss attributableMay 31, 2022 primarily attributed to noncontrolling interest is added to Net earningsan increase in employee related costs, legal, consulting, and primarily represents our joint venture partner's share in the results of operations of our Mexican railcar manufacturing joint ventures, adjusted for intercompany sales, and our European partner’s share of the results of our European operations.travel associated with increased business activity.
An increase in earnings from unconsolidated affiliatesIncome tax expense for the three months ended November 30, 2021 primarily relatedMay 31, 2022 compared to higher earnings in our Brazil operations.
An increase in Net gain on disposition of equipmentan income tax benefit for the three months ended November 30,May 31, 2021.
An increase in Manufacturing margin due to higher railcar deliveries The income tax benefit for the three months ended November 30,May 31, 2021 primarily related to accelerated depreciation and the impact of the CARES Act which allowed us to carry back tax losses to years when tax rates were higher, resulting in a tax benefit.
An increase in Interest and foreign exchange for the three months ended May 31, 2022 primarily attributed to an increase in interest expense from higher levels of borrowings.

These were partially offset by:

Net loss on extinguishment of debt for the three months ended May 31, 2021.

2730


Manufacturing Segment

 

Three Months Ended
November 30,

 

 

Increase

 

%

 

 

Three Months Ended
May 31,

 

 

Increase

 

%

 

(In millions, except railcar deliveries)

 

2021

 

 

2020

 

 

(Decrease)

 

Change

 

 

2022

 

 

2021

 

 

(Decrease)

 

 

Change

 

Revenue

 

$

452.5

 

$

304.5

 

$

148.0

 

48.6

%

 

$

650.9

 

 

$

339.7

 

 

$

311.2

 

 

 

91.6

%

Cost of revenue

 

$

421.6

 

$

280.9

 

$

140.7

 

50.1

%

 

$

611.3

 

 

$

292.4

 

 

$

318.9

 

 

 

109.1

%

Margin (%)

 

6.8

%

 

7.8

%

 

(1.0

%)

 

*

 

 

 

6.1

%

 

 

13.9

%

 

 

(7.8

%)

 

*

 

Operating profit ($)

 

$

12.3

 

$

5.4

 

$

6.9

 

127.8

%

 

$

20.5

 

 

$

29.1

 

 

$

(8.6

)

 

 

(29.6

%)

Operating profit (%)

 

2.7

%

 

1.8

%

 

0.9

%

 

*

 

 

 

3.1

%

 

 

8.6

%

 

 

(5.5

%)

 

*

 

Deliveries

 

3,700

 

2,700

 

1,000

 

37.0

%

 

 

4,900

 

 

 

2,800

 

 

 

2,100

 

 

 

75.0

%

* Not meaningful

Our Manufacturing segment primarily generates revenue from manufacturing a wide range of freight railcars and from the conversion of existing or in-service railcars through our facilities in North America and Europe. We also manufacture a broad range of ocean-going and river barges for transporting merchandise between ports within the United States.

Manufacturing revenue increased $148.0$311.2 million or 48.6%91.6% for the three months ended November 30, 2021May 31, 2022 compared to the three months ended November 30, 2020.May 31, 2021. The increase in revenue was primarily attributed to a 37.0%75.0% increase in railcar deliveries. The increase was also due to the additional revenue associated with an increase in steel and other input costs during the three months ended November 30, 2021,May 31, 2022, as many of our customer contracts include price escalation provisions when certain of our manufacturing costs increase.

Manufacturing cost of revenue increased $140.7$318.9 million or 50.1%109.1% for the three months ended November 30, 2021May 31, 2022 compared to the three months ended November 30, 2020.May 31, 2021. The increase in cost of revenue was primarily attributed to a 37.0%75.0% increase in the volume of railcar deliveries and higher steel and other input costs as well as inefficiencies in our Manufacturing operations in part due to ramping up production during the three months ended November 30, 2021.May 31, 2022.

Manufacturing margin as a percentage of revenue decreased 1.0%7.8% for the three months ended November 30, 2021May 31, 2022 compared to the three months ended November 30, 2020.May 31, 2021. The decrease in margin percentage for the three months ended November 30,May 31, 2022 was primarily attributed to higher costs and inefficiencies in our Manufacturing operations in part due to ramping up production. Many of our customer contracts include price escalation provisions. When certain of our manufacturing costs increase, we are able to increase the sales price to our customers. While this has no impact to our margin dollars, the increase in revenue and cost of sales has a negative impact to our margin as a percentage of revenue. In addition, the margin percentage for three months ended May 31, 2021 benefited from a $15.8 million favorable resolution of warranty and other loss contingencies associated with our international operations.

Manufacturing operating profit decreased $8.6 million for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The decrease in operating profit was primarily attributed to the three months ended May 31, 2021 benefiting from a favorable resolution of warranty and other loss contingencies associated with our international operations. This was partially offset by an increase in railcar deliveries for the three months ended May 31, 2022.

31


Maintenance Services Segment

 

 

Three Months Ended
May 31,

 

 

Increase

 

 

%

 

(in millions)

 

2022

 

 

2021

 

 

(Decrease)

 

 

Change

 

Revenue

 

$

101.5

 

 

$

80.9

 

 

$

20.6

 

 

 

25.5

%

Cost of revenue

 

$

91.1

 

 

$

73.7

 

 

$

17.4

 

 

 

23.6

%

Margin (%)

 

 

10.2

%

 

 

8.9

%

 

 

1.3

%

 

*

 

Operating profit ($)

 

$

8.6

 

 

$

4.2

 

 

$

4.4

 

 

 

104.8

%

Operating profit (%)

 

 

8.5

%

 

 

5.2

%

 

 

3.3

%

 

*

 

* Not meaningful

Our Maintenance Services segment primarily generates revenue from railcar component manufacturing and servicing and from providing railcar maintenance services.

Maintenance Services revenue increased $20.6 million or 25.5% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The increase was primarily attributed to higher volumes due to increased demand. The increase was also due to higher scrap metal pricing and volumes.

Maintenance Services cost of revenue increased $17.4 million or 23.6% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The increase was primarily due to higher costs associated with an increase in volumes and an increase in material and labor costs.

Maintenance Services margin as a percentage of revenue increased 1.3% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The increase in margin percentage was primarily attributed to an increase in scrap metal pricing. This was partially offset by higher material and labor costs during the three months ended May 31, 2022.

Maintenance Services operating profit increased $4.4 million or 104.8% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The increase in operating profit was primarily attributed to higher volumes and an increase in scrap metal pricing. This was partially offset by higher material and labor costs during the three months ended May 31, 2022.

32


Leasing & Management Services Segment

 

 

Three Months Ended
May 31,

 

 

Increase

 

 

%

 

(in millions)

 

2022

 

 

2021

 

 

(Decrease)

 

 

Change

 

Revenue

 

$

41.1

 

 

$

29.6

 

 

$

11.5

 

 

 

38.9

%

Cost of revenue

 

$

14.8

 

 

$

8.9

 

 

$

5.9

 

 

 

66.3

%

Margin (%)

 

 

64.0

%

 

 

69.9

%

 

 

(5.9

%)

 

*

 

Operating profit ($)

 

$

19.2

 

 

$

14.5

 

 

$

4.7

 

 

 

32.4

%

Operating profit (%)

 

 

46.7

%

 

 

49.0

%

 

 

(2.3

%)

 

*

 

* Not meaningful

Our Leasing & Management Services segment generates revenue from leasing railcars from our lease fleet which includes GBX Leasing, providing various management services, syndication revenue associated with leases attached to new railcar sales, and interim rent on leased railcars for syndication.

Leasing & Management Services revenue increased $11.5 million or 38.9% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The increase was primarily attributed to higher syndication revenue from an increase in the volume of new railcar sales with leases attached and higher interim rent on leased railcars for syndication.

Leasing & Management Services cost of revenue increased $5.9 million or 66.3% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The increase was primarily due to higher costs from the additions to our lease fleet.

Leasing & Management Services margin as a percentage of revenue decreased 5.9% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The decrease in margin percentage was primarily attributed to a benefit associated with a lease transfer fee on previously syndicated railcars during the three months ended May 31, 2021. This was partially offset by higher syndication activity during the three months ended May 31, 2022.

Leasing & Management Services operating profit increased $4.7 million for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The increase was primarily attributed to higher syndication activity.

33


Selling and Administrative Expense

 

 

Three Months Ended
May 31,

 

 

Increase

 

 

%

 

(in millions)

 

2022

 

 

2021

 

 

(Decrease)

 

 

Change

 

Selling and administrative expense

 

$

57.4

 

 

$

49.3

 

 

$

8.1

 

 

 

16.4

%

Selling and administrative expense was $57.4 million or 7.2% of revenue for the three months ended May 31, 2022 compared to $49.3 million or 11.0% of revenue for the prior comparable period. The $8.1 million increase was primarily attributed to an increase in employee related costs, legal, consulting, and travel associated with increased business activity.

Net Gain (Loss) on Disposition of Equipment

Net gain (loss) on disposition of equipment primarily includes the sale of assets from our lease fleet (Equipment on operating leases, net) and disposition of property, plant and equipment. Assets are periodically sold in the normal course of business in order to accommodate customer demand and to manage risk and liquidity.

Net gain on disposition of equipment was $0.7 million for the three months ended May 31, 2022 compared to net loss on disposition of equipment of $0.2 million for the three months ended May 31, 2021.

Interest and Foreign Exchange

Interest and foreign exchange expense was composed of the following:

 

 

Three Months Ended
May 31,

 

 

Increase

 

(in millions)

 

2022

 

 

2021

 

 

(Decrease)

 

Interest and foreign exchange:

 

 

 

 

 

 

 

 

 

Interest and other expense

 

$

15.4

 

 

$

10.9

 

 

$

4.5

 

Foreign exchange gain

 

 

(0.5

)

 

 

(0.7

)

 

 

0.2

 

 

 

$

14.9

 

 

$

10.2

 

 

$

4.7

 

The $4.7 million increase in interest and foreign exchange expense for the three months ended May 31, 2022 compared to the three months ended May 31, 2021 was primarily attributed to an increase in interest expense from higher levels of borrowings.

Net Loss on Extinguishment of Debt

Net loss on extinguishment of debt was $4.8 million for the three months ended May 31, 2021, which relates to the retirement of $207.1 million of our 2.875% convertible notes due 2024 and $50 million of our 2.25% convertible notes due 2024.

Income Tax

For the three months ended May 31, 2022, we had income tax expense of $1.1 million on pre-tax income of $4.7 million for an effective tax rate of 23%. The provision for income taxes during interim quarterly reporting periods is based on our estimates of the effective tax rates for the full fiscal year and may be positively or negatively by adjustments that are required to be reported in the quarter.

34


For the three months ended May 31, 2021, we had an income tax benefit of $6.9 million on pre-tax income of $10.7 million. The tax benefit for the three months ended May 31, 2021 primarily related to accelerated depreciation and the impact of the CARES Act which allows us to carry back tax losses to years when tax rates were higher, resulting in a tax benefit.

The effective tax rate can fluctuate year-to-year due to changes in the mix of foreign and domestic pre-tax earnings. It can also fluctuate with changes in the proportion of pre-tax earnings attributable to our Mexican railcar manufacturing joint venture. The joint venture is treated as a partnership for tax purposes and, as a result, the partnership’s entire pre-tax earnings are included in earnings (loss) before income taxes and earnings from unconsolidated affiliates, whereas only our 50% share of the tax is included in Income tax (expense) benefit.

Earnings From Unconsolidated Affiliates

Through unconsolidated affiliates we produce rail and industrial components and have an ownership stake in a railcar manufacturer in Brazil. We record the results from these unconsolidated affiliates on an after-tax basis.

Earnings from unconsolidated affiliates was $4.0 million and $2.4 million for the three months ended May 31, 2022 and 2021, respectively. The increase was primarily related to higher profitability at our Brazil operations.

Noncontrolling Interest

Net earnings attributable to noncontrolling interest was $4.5 million and $0.3 million for the three months ended May 31, 2022 and 2021, respectively. Net earnings attributable to noncontrolling interest primarily represents our joint venture partner's share in the results of operations of our Mexican railcar manufacturing joint ventures, adjusted for intercompany sales, and our European partner’s share of the results of our European operations.

35


Nine Months Ended May 31, 2022 Compared to the Nine Months Ended May 31, 2021

Overview

Revenue, Cost of revenue, Margin and Earnings (loss) from operations (operating profit or loss) presented below, include amounts from external parties and exclude intersegment activity that is eliminated in consolidation.

 

 

Nine Months Ended
May 31,

 

(in millions, except per share amounts)

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

Manufacturing

 

$

1,659.1

 

 

$

845.7

 

Maintenance Services

 

 

260.5

 

 

 

218.1

 

Leasing & Management Services

 

 

107.4

 

 

 

85.0

 

 

 

 

2,027.0

 

 

 

1,148.8

 

Cost of revenue:

 

 

 

 

 

 

Manufacturing

 

 

1,567.9

 

 

 

775.1

 

Maintenance Services

 

 

244.0

 

 

 

203.4

 

Leasing & Management Services

 

 

36.4

 

 

 

36.8

 

 

 

 

1,848.3

 

 

 

1,015.3

 

Margin:

 

 

 

 

 

 

Manufacturing

 

 

91.2

 

 

 

70.6

 

Maintenance Services

 

 

16.5

 

 

 

14.7

 

Leasing & Management Services

 

 

71.0

 

 

 

48.2

 

 

 

 

178.7

 

 

 

133.5

 

Selling and administrative

 

 

156.4

 

 

 

136.4

 

Net gain on disposition of equipment

 

 

(34.3

)

 

 

(0.8

)

Earnings (loss) from operations

 

 

56.6

 

 

 

(2.1

)

Interest and foreign exchange

 

 

39.3

 

 

 

30.9

 

Net loss on extinguishment of debt

 

 

 

 

 

4.8

 

Earnings (loss) before income taxes and earnings from
   unconsolidated affiliates

 

 

17.3

 

 

 

(37.8

)

Income tax (expense) benefit

 

 

(2.9

)

 

 

36.0

 

Earnings (loss) before earnings from unconsolidated affiliates

 

 

14.4

 

 

 

(1.8

)

Earnings from unconsolidated affiliates

 

 

10.0

 

 

 

1.3

 

Net earnings (loss)

 

 

24.4

 

 

 

(0.5

)

Net loss attributable to noncontrolling interest

 

 

2.3

 

 

 

1.2

 

Net earnings attributable to Greenbrier

 

$

26.7

 

 

$

0.7

 

Diluted earnings per common share

 

$

0.79

 

 

$

0.02

 

Performance for our segments is evaluated based on operating profit or loss. Corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. Management does not allocate Interest and foreign exchange or Income tax (expense) benefit for either external or internal reporting purposes.

 

 

Nine Months Ended
May 31,

 

(in millions)

 

2022

 

 

2021

 

Operating profit (loss):

 

 

 

 

 

 

Manufacturing

 

$

34.6

 

 

$

16.7

 

Maintenance Services

 

 

10.4

 

 

 

6.4

 

Leasing & Management Services

 

 

84.0

 

 

 

31.7

 

Corporate

 

 

(72.4

)

 

 

(56.9

)

 

 

$

56.6

 

 

$

(2.1

)

36


Consolidated Results

 

 

Nine Months Ended
May 31,

 

 

Increase

 

 

%

 

(in millions)

 

2022

 

 

2021

 

 

(Decrease)

 

 

Change

 

Revenue

 

$

2,027.0

 

 

$

1,148.8

 

 

$

878.2

 

 

 

76.4

%

Cost of revenue

 

$

1,848.3

 

 

$

1,015.3

 

 

$

833.0

 

 

 

82.0

%

Margin (%)

 

 

8.8

%

 

 

11.6

%

 

 

(2.8

%)

 

*

 

Net earnings attributable to Greenbrier

 

$

26.7

 

 

$

0.7

 

 

$

26.0

 

 

*

 

* Not meaningful

Through our integrated business model, we provide a broad range of custom products and services in each of our segments, which have various average selling prices and margins. The demand for and mix of products and services delivered changes from period to period, which causes fluctuations in our results of operations.

The 76.4% increase in revenue for the nine months ended May 31, 2022 as compared to the nine months ended May 31, 2021 was primarily due to a 96.2% increase in Manufacturing revenue. The increase in Manufacturing revenue was primarily attributed to an 80.6% increase in railcar deliveries.

The 82.0% increase in cost of revenue for the nine months ended May 31, 2022 as compared to the nine months ended May 31, 2021 was primarily due to a 102.3% increase in Manufacturing cost of revenue. The increase in Manufacturing cost of revenue was primarily attributed to an 80.6% increase in railcar deliveries and higher steel and other input costs during the nine months ended May 31, 2022.

Margin as a percentage of revenue was 8.8% and 11.6% for the nine months ended May 31, 2022 and 2021, respectively. The overall margin as a changepercentage of revenue was negatively impacted by a decrease in product mix. In addition, manyManufacturing margin from 8.3% to 5.5% primarily attributed to higher costs and inefficiencies in our Manufacturing operations in part due to ramping up production. Many of our customer contracts include price escalation provisions. When certain of our manufacturing costs increase, we are able to increase the sales price to our customers. While this has no impact to our margin dollars, the increase in revenue and cost of sales has a negative impact to our margin as a percentage of revenue.

The $26.0 million increase in net earnings attributable to Greenbrier for the nine months ended May 31, 2022 as compared to the nine months ended May 31, 2021 was primarily due to the following:

An increase in Margin primarily due to higher railcar deliveries and syndication revenue for the nine months ended May 31, 2022.
An increase in Net gain on disposition of equipment for the nine months ended May 31, 2022.

These were partially offset by:

The income tax benefit for the nine months ended May 31, 2021 primarily related to accelerated depreciation and the impact of the CARES Act which allowed us to carry back tax losses to years when tax rates were higher, resulting in a tax benefit.
An increase in Selling and administrative expense for the nine months ended May 31, 2022 was primarily attributed to higher costs for legal, consulting and travel associated with increased business activity. The increase was also attributed to higher employee related costs.

37


Manufacturing Segment

 

 

Nine Months Ended
May 31,

 

 

Increase

 

 

%

 

(In millions, except railcar deliveries)

 

2022

 

 

2021

 

 

(Decrease)

 

 

Change

 

Revenue

 

$

1,659.1

 

 

$

845.7

 

 

$

813.4

 

 

 

96.2

%

Cost of revenue

 

$

1,567.9

 

 

$

775.1

 

 

$

792.8

 

 

 

102.3

%

Margin (%)

 

 

5.5

%

 

 

8.3

%

 

 

(2.9

%)

 

*

 

Operating profit ($)

 

$

34.6

 

 

$

16.7

 

 

$

17.9

 

 

 

107.2

%

Operating profit (%)

 

 

2.1

%

 

 

2.0

%

 

 

0.1

%

 

*

 

Deliveries

 

 

13,000

 

 

 

7,200

 

 

 

5,800

 

 

 

80.6

%

* Not meaningful

Our Manufacturing segment primarily generates revenue from manufacturing a wide range of freight railcars and from the conversion of existing or in-service railcars through our facilities in North America and Europe. We also manufacture a broad range of ocean-going and river barges for transporting merchandise between ports within the United States.

Manufacturing revenue increased $813.4 million or 96.2% for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021. The increase in revenue was primarily attributed to an 80.6% increase in railcar deliveries. The increase was also due to the additional revenue associated with an increase in steel and other input costs during the nine months ended May 31, 2022, as many of our customer contracts include price escalation provisions when certain of our manufacturing costs increase.

Manufacturing cost of revenue increased $792.8 million or 102.3% for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021. The increase in cost of revenue was primarily attributed to an 80.6% increase in the volume of railcar deliveries and higher steel and other input costs as well as inefficiencies in our Manufacturing operations in part due to ramping up production during the nine months ended May 31, 2022.

Manufacturing margin as a percentage of revenue decreased 2.9% for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021. The decrease in margin percentage for the nine months ended May 31, 2022 was primarily attributed to higher costs and inefficiencies in our Manufacturing operations in part due to ramping up production. Many of our customer contracts include price escalation provisions. When certain of our manufacturing costs increase, we are able to increase the sales price to our customers. While this has no impact to our margin dollars, the increase in revenue and cost of sales has a negative impact to our margin as a percentage of revenue. In addition, the margin percentage for nine months ended May 31, 2021 benefited from a $15.8 million favorable resolution of warranty and other loss contingencies associated with our international operations.

Manufacturing operating profit increased $6.9$17.9 million or 127.8% for the threenine months ended November 30, 2021May 31, 2022 compared to the threenine months ended November 30, 2020.May 31, 2021. The increase in operating profit was primarily attributed to an increase in railcar deliveries.

2838


Maintenance Services Segment

 

Three Months Ended
November 30,

 

 

Increase

 

%

 

 

Nine Months Ended
May 31,

 

 

Increase

 

%

 

(in millions)

 

2021

 

 

2020

 

 

(Decrease)

 

Change

 

 

2022

 

 

2021

 

 

(Decrease)

 

 

Change

 

Revenue

 

$

72.4

 

$

65.6

 

$

6.8

 

10.4

%

 

$

260.5

 

 

$

218.1

 

 

$

42.4

 

 

 

19.4

%

Cost of revenue

 

$

71.2

 

$

63.0

 

$

8.2

 

13.0

%

 

$

244.0

 

 

$

203.4

 

 

$

40.6

 

 

 

20.0

%

Margin (%)

 

1.7

%

 

4.0

%

 

(2.3

%)

 

*

 

 

 

6.3

%

 

 

6.7

%

 

 

(0.4

%)

 

*

 

Operating loss ($)

 

$

(1.1

)

 

$

(0.2

)

 

$

(0.9

)

 

*

 

Operating loss (%)

 

(1.5

%)

 

(0.3

%)

 

(1.2

%)

 

*

 

Operating profit ($)

 

$

10.4

 

 

$

6.4

 

 

$

4.0

 

 

 

62.5

%

Operating profit (%)

 

 

4.0

%

 

 

2.9

%

 

 

1.1

%

 

*

 

* Not meaningful

Our Maintenance Services segment primarily generates revenue from railcar component manufacturing and servicing and from providing railcar maintenance services.

Maintenance Services revenue increased $6.8$42.4 million or 10.4%19.4% for the threenine months ended November 30, 2021May 31, 2022 compared to the threenine months ended November 30, 2020.May 31, 2021. The increase was primarily attributed to higher volumes due to increased demand. The increase was also due to higher revenues associated withdemand and an increase in scrap metal pricing and volume as we scrap wheels and other components.

Maintenance Services cost of revenue increased $8.2$40.6 million or 13.0%20.0% for the threenine months ended November 30, 2021May 31, 2022 compared to the threenine months ended November 30, 2020.May 31, 2021. The increase was primarily due to higher costs associated with an increase in volumes and an increase in material and labor costs.

Maintenance Services margin as a percentage of revenue decreased 2.3%0.4% for the threenine months ended November 30, 2021May 31, 2022 compared to the threenine months ended November 30, 2020.May 31, 2021. The decrease in margin percentage was primarily attributed to higher material and labor costs during the threenine months ended November 30, 2021.May 31, 2022. This was partially offset by an increase in scrap metal pricing.

Maintenance Services operating lossprofit increased $0.9$4.0 million or 62.5% for the threenine months ended November 30, 2021May 31, 2022 compared to the threenine months ended November 30, 2020.May 31, 2021. The increase in operating lossprofit was primarily attributed to higher volumes and an increase in scrap metal pricing. This was partially offset by higher material and labor costs during the threenine months ended November 30, 2021. This was partially offset by an increase in volumes and scrap metal pricing.May 31, 2022.

2939


Leasing & Management Services Segment

 

Three Months Ended
November 30,

 

 

Increase

 

%

 

 

Nine Months Ended
May 31,

 

 

Increase

 

%

 

(in millions)

 

2021

 

 

2020

 

 

(Decrease)

 

Change

 

 

2022

 

 

2021

 

 

(Decrease)

 

 

Change

 

Revenue

 

$

25.8

 

$

32.9

 

$

(7.1

)

 

(21.6

%)

 

$

107.4

 

 

$

85.0

 

 

$

22.4

 

 

 

26.4

%

Cost of revenue

 

$

10.3

 

$

18.4

 

$

(8.1

)

 

(44.0

%)

 

$

36.4

 

 

$

36.8

 

 

$

(0.4

)

 

 

(1.1

%)

Margin (%)

 

60.1

%

 

44.1

%

 

16.0

%

 

*

 

 

 

66.1

%

 

 

56.7

%

 

 

9.4

%

 

*

 

Operating profit ($)

 

$

17.2

 

$

10.1

 

$

7.1

 

70.3

%

 

$

84.0

 

 

$

31.7

 

 

$

52.3

 

 

 

165.0

%

Operating profit (%)

 

66.7

%

 

30.7

%

 

36.0

%

 

*

 

 

 

78.2

%

 

 

37.3

%

 

 

40.9

%

 

*

 

* Not meaningful

Our Leasing & Management Services segment generates revenue from leasing railcars from our lease fleet which includes GBX Leasing, providing various management services, syndication revenue associated with leases attached to new railcar sales, interim rent on leased railcars for syndication and the sale of railcars purchased from third parties with the intent to resell. The gross proceeds from the sale of these railcars are recorded in revenue and the costs of purchasing these railcars are recorded in cost of revenue.

Leasing & Management Services revenue decreased $7.1increased $22.4 million or 21.6%26.4% for the threenine months ended November 30, 2021May 31, 2022 compared to the threenine months ended November 30, 2020.May 31, 2021. The decreaseincrease was primarily attributed to higher syndication revenue from an increase in the volume of new railcar sales with leases attached and higher leasing revenue primarily from additions to our fleet. These were partially offset by a decrease in the sale of railcars which we had purchased from third parties with the intent to resell and a decline in management services volume. This was partially offset by an increase in leasing revenue primarily from the addition of GBX Leasing's fleet.resell.

Leasing & Management Services cost of revenue decreased $8.1$0.4 million or 44.0%1.1% for the threenine months ended November 30, 2021May 31, 2022 compared to the threenine months ended November 30, 2020.May 31, 2021. The decrease was primarily due to a decrease in the volumelower volumes of railcars sold that we purchased from third parties and a decrease in costs from a decline in management services volume.parties. This was partially offset by an increase in costs from the addition of GBX Leasing'sadditions to our lease fleet.

Leasing & Management Services margin as a percentage of revenue increased 16.0%9.4% for the threenine months ended November 30, 2021May 31, 2022 compared to the threenine months ended November 30, 2020. Margin as aMay 31, 2021. The increase in margin percentage of revenuewas primarily attributed to higher syndication activity. In addition, the margin percentage for the threenine months ended November 30, 2020May 31, 2021 was negatively impacted by higher sales of railcars that we purchased from third parties which have lower margin percentages.

Leasing & Management Services operating profit increased $7.1$52.3 million or 70.3%165% for the threenine months ended November 30, 2021May 31, 2022 compared to the threenine months ended November 30, 2020.May 31, 2021. The increase was primarily attributed to a higher net gain on disposition of equipment.equipment and higher syndication activity.

3040


Selling and Administrative Expense

 

Three Months Ended
November 30,

 

 

Increase

 

%

 

 

Nine Months Ended
May 31,

 

 

Increase

 

%

 

(in millions)

 

2021

 

 

2020

 

 

(Decrease)

 

Change

 

 

2022

 

 

2021

 

 

(Decrease)

 

 

Change

 

Selling and administrative expense

 

$

44.3

 

$

43.7

 

$

0.6

 

1.4

%

 

$

156.4

 

 

$

136.4

 

 

$

20.0

 

 

 

14.7

%

Selling and administrative expense was $44.3$156.4 million or 8.0%7.7% of revenue for the threenine months ended November 30, 2021May 31, 2022 compared to $43.7$136.4 million or 10.8%11.9% of revenue for the prior comparable period. The $0.6$20.0 million increase was primarily attributed to higher costs for legal, consulting and travel associated with strategicincreased business and IT initiatives.activity. The increase was also attributed to higher employee related costs.

Net Gain on Disposition of Equipment

Net gain on disposition of equipment was $8.5 million and $0.9 million for the three months ended November 30, 2021 and 2020, respectively. Net gain on disposition of equipment primarily includes the sale of assets from our lease fleet (Equipment on operating leases, net) and disposition of property, plant and equipment. Assets are periodically sold in the normal course of business in order to accommodate customer demand and to manage risk and liquidity.

Other CostsNet gain on disposition of equipment was $34.3 million and $0.8 million for the nine months ended May 31, 2022 and 2021, respectively. The increase in Net gain on disposition of equipment was primarily attributed to sales of assets from our lease fleet during the nine months ended May 31, 2022.

Interest and Foreign Exchange

Interest and foreign exchange expense was composed of the following:

 

Three Months Ended
November 30,

 

 

Increase

 

 

Nine Months Ended
May 31,

 

 

Increase

 

(in millions)

 

2021

 

 

2020

 

 

(Decrease)

 

 

2022

 

 

2021

 

 

(Decrease)

 

Interest and foreign exchange:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other expense

 

$

11.3

 

$

10.5

 

$

0.8

 

 

$

38.7

 

 

$

31.3

 

 

$

7.4

 

Foreign exchange loss

 

 

1.3

 

 

0.6

 

 

0.7

 

Foreign exchange (gain) loss

 

 

0.6

 

 

 

(0.4

)

 

 

1.0

 

 

$

12.6

 

$

11.1

 

 

$

1.5

 

 

$

39.3

 

 

$

30.9

 

 

$

8.4

 

The $1.5$8.4 million increase in interest and foreign exchange expense for the threenine months ended November 30, 2021May 31, 2022 compared to the threenine months ended November 30, 2020May 31, 2021 was primarily attributed to the change in the Brazilian Real’s foreign exchange rate relative to the U.S. Dollar and an increase in interest expense from increased borrowings.higher levels of borrowings and interest rates.

Net Loss on Extinguishment of Debt

Net loss on extinguishment of debt was $4.8 million for the nine months ended May 31, 2021, which relates to the retirement of $207.1 million of our 2.875% convertible notes due 2024 and $50 million of our 2.25% convertible notes due 2024.

Income Tax

For the threenine months ended November 30,May 31, 2022, we had income tax expense of $2.9 million on pre-tax income of $17.3 million for an effective tax rate of 17%. The provision for income taxes during interim quarterly reporting periods is based on our estimates of the effective tax rates for the full fiscal year and may be positively or negatively by adjustments that are required to be reported in the quarter. Tax expense for the nine months ended May 31, 2022 included net favorable discrete items.


41


For the nine months ended May 31, 2021, we had an income tax benefit of $1.4$36.0 million on a pre-tax loss of $0.8$37.8 million. The tax benefit for the threenine months ended November 30,May 31, 2021 primarily related primarily to net favorable adjustments from amending prior yearaccelerated depreciation and the impact of the CARES Act which allows us to carry back to years when tax returns.

For the three months ended November 30, 2020, we had an incomerates were higher, resulting in a tax benefit of $7.3 million on a pre-tax loss of $13.2 million.benefit. The tax benefit foris derived from the three months ended November 30, 2020 included net favorable discreteUS Federal tax benefits related to changes in foreign currency exchange rates forrate differential between the 2016 tax rate of 35% and our U.S. Dollar denominated foreign operations.current rate of 21%.

The effective tax rate can fluctuate year-to-year due to changes in the mix of foreign and domestic pre-tax earnings. It can also fluctuate with changes in the proportion of pre-tax earnings attributable to our Mexican railcar manufacturing joint venture. The joint venture is treated as a partnership for tax purposes and, as a result, the partnership’s entire pre-tax earnings are included in Lossearnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates, whereas only our 50% share of the tax is included in Income tax (expense) benefit.

31


Earnings (Loss) From Unconsolidated Affiliates

Through unconsolidated affiliates we produce rail and industrial components and have an ownership stake in a railcar manufacturer in Brazil. We record the after-tax results from these unconsolidated affiliates.affiliates on an after-tax basis.

Earnings from unconsolidated affiliates was $5.0$10.0 million and $1.3 million for the threenine months ended November 30,May 31, 2022 and 2021, compared to Loss from unconsolidated affiliates of $0.8 million for the three months ended November 30, 2020.respectively. The increase in earnings from unconsolidated affiliates was primarily related to higher earnings inprofitability at our Brazil operations.

Noncontrolling Interest

Net loss attributable to noncontrolling interest was $5.2$2.3 million and $1.2 million for the threenine months ended November 30,May 31, 2022 and 2021, compared torespectively. Net earnings attributable to noncontrolling interest of $3.3 million for the three months ended November 30, 2020. Net (earnings) loss attributable to noncontrolling interest primarily represents our joint venture partner's share in the results of operations of our Mexican railcar manufacturing joint ventures, adjusted for intercompany sales, and our European partner’s share of the results of our European operations.

3242


Liquidity and Capital Resources

 

Three Months Ended
November 30,

 

 

Nine Months Ended
May 31,

 

(in millions)

 

2021

 

 

2020

 

 

2022

 

 

2021

 

Net cash provided by (used in) operating activities

 

$

(196.7

)

 

$

8.6

 

Net cash used in operating activities

 

$

(328.4

)

 

$

(123.8

)

Net cash used in investing activities

 

(158.7

)

 

(24.9

)

 

 

(96.1

)

 

 

(49.3

)

Net cash provided by (used in) financing activities

 

130.7

 

(97.9

)

 

 

199.0

 

 

 

(42.0

)

Effect of exchange rate changes

 

 

(8.8

)

 

 

5.2

 

 

 

19.9

 

 

 

9.9

 

Decrease in cash and cash equivalents and restricted cash

 

$

(233.5

)

 

$

(109.0

)

 

$

(205.6

)

 

$

(205.2

)

We have been financed through cash generated from operations and borrowings. At November 30, 2021May 31, 2022 cash and cash equivalents and restricted cash were $437.9$465.8 million, a decrease of $233.5$205.6 million from $671.4 million at the August 31, 2021.

Cash Flows From Operating Activities

 

The change in cash provided by (used in)used in operating activities for the threenine months ended November 30, 2021May 31, 2022 compared to the threenine months ended November 30, 2020May 31, 2021 was primarily due to a net changeincrease in working capital associated with increased production rates and from higher steel and other input costs.

Cash Flows From Investing Activities

 

Cash used in investing activities primarily related to capital expenditures net of proceeds from the sale of assets and investment activity with our unconsolidated affiliates. The change in cash used in investing activities for the threenine months ended November 30, 2021May 31, 2022 compared to the threenine months ended November 30, 2020May 31, 2021 was primarily attributable to an increase in capital expenditures due to additions to our lease fleet as part of our leasing strategy, partially offset by an increase in proceeds from the sale of assets. The increase in capital expenditures duringassets compared to the three months ended November 30, 2021 primarily related to additions to our lease fleet as part of our leasing strategy.prior year.

 

Three Months Ended
November 30,

 

 

Nine Months Ended
May 31,

 

(in millions)

 

2021

 

 

2020

 

 

2022

 

 

2021

 

Capital expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

Leasing & Management Services

 

$

(181.9

)

 

$

(32.0

)

 

$

219.4

 

 

$

41.6

 

Manufacturing

 

(4.5

)

 

(5.5

)

 

 

25.4

 

 

 

14.9

 

Maintenance Services

 

 

(0.5

)

 

 

(1.1

)

 

 

4.0

 

 

 

6.4

 

Total capital expenditures (gross)

 

$

(186.9

)

 

$

(38.6

)

 

$

248.8

 

 

$

62.9

 

Proceeds from sales of assets

 

 

28.0

 

 

8.7

 

 

 

(155.1

)

 

 

(12.2

)

Total capital expenditures (net of proceeds)

 

$

(158.9

)

 

$

(29.9

)

 

$

93.7

 

 

$

50.7

 

Capital expenditures primarily relate to additions to our lease fleet and on-going investments into the safety and productivity of our facilities. Proceeds from the sale of assets primarily relate to sales of railcars from our lease fleet within Leasing & Management Services. Assets from our lease fleet are periodically sold in the normal course of business to accommodate customer demand and to manage risk and liquidity. Proceeds from sales of assets are expected to be approximately $145$155 million for 2022.

Capital expenditures for 2022 are expected to be approximately $275$310 million for Leasing & Management Services, approximately $55$50 million for Manufacturing and approximately $10 million for Maintenance Services. Capital expenditures for 2022 primarily relate to additions to our lease fleet reflecting our enhanced leasing strategy and continued investments into the safety and productivity of our facilities.

Cash Flows From Financing Activities

 

The change in cash provided by (used in) financing activities for the threenine months ended November 30, 2021May 31, 2022 compared to the threenine months ended November 30, 2020May 31, 2021 was primarily attributed to proceeds from debt, net of repayments. During the nine months ended May 31, 2022 we issued asset backed securities of $323.3 million, and used proceeds to pay down our credit facility for GBX Leasing.

43


Dividend & Share Repurchase Program

 

A quarterly dividend of $0.27 per share was declared on JanuaryJuly 6, 2022.

33


The Board of Directors has authorized our company to repurchase shares of our common stock. The share repurchase program has an expiration date of January 31, 2023. The amount remaining for repurchase was $100.0 million as of November 30, 2021.May 31, 2022. Under the share repurchase program, shares of common stock may be purchased on the open market or through privately negotiated transactions from time to time. The timing and amount of purchases will be based upon market conditions, securities law limitations and other factors. The program may be modified, suspended or discontinued at any time without prior notice. The share repurchase program does not obligate us to acquire any specific number of shares in any period. There were no shares repurchased under the share repurchase program during the threenine months ended November 30, 2021May 31, 2022 and 2020.2021.

Cash, Borrowing Availability and Credit Facilities

As of November 30, 2021,May 31, 2022, we had $410.8$449.7 million in Cash and cash equivalents and $199.0$85.0 million in available borrowings. Our significantcurrent cash balance is part of our strategy to maintain strong liquidity as we navigate the uncertainties around the COVID-19 pandemic and emerging economic recovery.to respond to current uncertainties.

Senior secured credit facilities, consisting of four components, aggregated to $1.1 billion as of November 30, 2021.May 31, 2022. We had an aggregate of $199.0$85.0 million available to draw down under committed credit facilities as of November 30, 2021.May 31, 2022. This amount consists of $68.5$34.6 million available on the North American credit facility, $25.5$15.4 million on the European credit facilities and $105.0$35.0 million on the Mexican credit facilities.

 

As of November 30, 2021,May 31, 2022, a $600.0 million revolving line of credit, maturing August 2026, secured by substantially all our U.S. assets not otherwise pledged as security for term loans or the warehouse credit facility, existed to provide working capital and interim financing of equipment, principally for our U.S. and Mexican operations. Advances under this North American credit facility bear interest at LIBOR plus 1.50% or Prime plus 0.50% depending on the type of borrowing. Available borrowings under the credit facility are generally based on defined levels of eligible inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios.

 

As of November 30, 2021,May 31, 2022, a $300.0$350.0 million non-recourse warehouse credit facility existed to support the operations of GBX Leasing, a joint venture in which we own approximately 95%. Advances under this facility bear interest at LIBOR plus 2.0%. The warehouse credit facility converts to a term loan in April 2023 and matures in April 2025.

 

As of November 30, 2021,May 31, 2022, lines of credit totaling $73.8$73.7 million secured by certain of our European assets, with variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 1.2% to WIBOR plus 1.5% and Euro Interbank Offered Rate (EURIBOR) plus 1.1%, were available for working capital needs of our European manufacturing operations. The European lines of credit include $37.4$35.4 million which are guaranteed by us. European credit facilities are regularly renewed. Currently, these European credit facilities have maturities that range from JuneJuly 2022 through October 2023.

 

As of November 30, 2021,May 31, 2022, our Mexican railcar manufacturing operations had four lines of credit totaling $120.0 million for working capital needs. The first line of credit provides up to $30.0 million, of which we and our joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 3.75% to 4.25%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through June 2024. The second line of credit provides up to $35.0 million, of which we and our joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 3.70%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through June 2023. The third line of credit provides up to $50.0 million and matures in October 2024. Advances under this facility bear interest at LIBOR plus 4.25%. The fourth line of credit provides up to $5.0 million and matures in September 2022. Advances under this facility bear interest at LIBOR plus 2.95%.

44


Credit facility balances:

As of November 30, 2021, outstanding

(in millions)

 

May 31,
2022

 

 

August 31,
2021

 

 

 

 

 

 

 

 

North America

 

$

160.0

 

 

$

160.0

 

Mexico

 

 

85.0

 

 

 

15.0

 

Europe

 

 

58.3

 

 

 

50.2

 

GBX Leasing

 

 

-

 

 

 

147.0

 

Total Revolving notes

 

$

303.3

 

 

$

372.2

 

Outstanding commitments under the senior secured credit facilities consisted of $160.0 million in borrowings and $6.7 million in letters of credit under the North American credit facility $293.0included letters of credit which totaled $6.9 million outstanding under the GBX Leasing credit facility, $48.3and $8.4 million outstanding under the European credit facilitiesas of May 31, 2022 and $15.0 million outstanding under the Mexican credit facilities.August 31, 2021, respectively.

34


Other Information

 

The revolving and operating lines of credit, along with notes payable, contain covenants with respect to us and our various subsidiaries, the most restrictive of which, among other things, limit our ability to: incur additional indebtedness or guarantees; pay dividends or repurchase stock; enter into financing leases; create liens; sell assets; engage in transactions with affiliates, including joint ventures and non U.S. subsidiaries, including but not limited to loans, advances, equity investments and guarantees; enter into mergers, consolidations or sales of substantially all our assets; and enter into new lines of business. The covenants also require certain maximum ratios of debt to total capitalization and minimum levels of fixed charges (interest plus rent) coverage. As of November 30, 2021,May 31, 2022, we were in compliance with all such restrictive covenants.

From time to time, we may seek to repurchase or otherwise retire or exchange securities, including outstanding convertible notes, borrowings and equity securities, and take other steps to reduce our debt, extend the maturities of our debt or otherwise improve our balance sheet. These actions may include open market repurchases, unsolicited or solicited privately negotiated transactions or other retirements, repurchases or exchanges. Such retirements, repurchases or exchanges of one note or security for another note or security (now or hereafter existing), if any, will depend on a number of factors, including, but not limited to, prevailing market conditions, trading levels of our debt, our liquidity requirements and contractual restrictions, if applicable. The amounts involved in any such transactions may, individually or in the aggregate, be material and may involve all or a portion of a particular series of notes or other indebtedness which may reduce the float and impact the trading market of notes or other indebtedness which remain outstanding.

We have global operations that conduct business in their local currencies as well as other currencies. To mitigate the exposure to transactions denominated in currencies other than the functional currency, we enter into foreign currency forward exchange contracts with established financial institutions to protect the margin on a portion of foreign currency sales in firm backlog. Given the strong credit standing of the counterparties, no provision has been made for credit loss due to counterparty non-performance.

To mitigate the exposure to changes in interest rates, we have managed a portion of our variable rate debt with interest rate swap agreements, effectively converting $408.2 million of variable rate debt to fixed rate debt as of May 31, 2022.

We expect existing funds and cash generated from operations, together with proceeds from financing activities including borrowings under existing credit facilities and long-term financings, to be sufficient to fund expected debt repayments, working capital needs, planned capital expenditures, additional investments in our unconsolidated affiliates and dividends during the next twelve months.

Off-Balance Sheet Arrangements

We do not currently have off balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our Consolidated Financial Statements.

45


Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires judgment on the part of management to arrive at estimates and assumptions on matters that are inherently uncertain. These estimates may affect the amount of assets, liabilities, revenue and expenses reported in the financial statements and accompanying notes and disclosure of contingent assets and liabilities within the financial statements. Estimates and assumptions are periodically evaluated and may be adjusted in future periods. Actual results could differ from those estimates.

Income taxes -The asset and liability method is used to account for income taxes. We are required to estimate the timing of the recognition of deferred tax assets and liabilities, make assumptions about the future deductibility of deferred tax assets and assess deferred tax liabilities based on enacted law and tax rates for each tax jurisdiction to determine the amount of deferred tax assets and liabilities. Deferred income taxes are provided for the temporary effects of differences between assets and liabilities recognized for financial statement and income tax reporting purposes. Valuation allowances reduce deferred tax assets to an amount that will more likely than not be realized. We recognize liabilities for uncertain tax positions based on whether evidence indicates that it is more likely than not that the position will be sustained on audit.

35


It is inherently difficult and subjective to estimate whether a valuation allowance or uncertain tax position is necessary. In making this assessment, management may analyze future taxable income, reversing temporary differences and/or ongoing tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income. Changes in tax law or court interpretations may result in the recognition of a tax benefit or an additional charge to the tax provision.

Warranty accruals - Warranty costs to cover a defined warranty period are estimated and charged to operations. The estimated warranty cost is based on historical warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types.

These estimates are inherently uncertain as they are based on historical data for existing products and judgment for new products. If warranty claims are made in the current period for issues that have not historically been the subject of warranty claims and were not taken into consideration in establishing the accrual or if claims for issues already considered in establishing the accrual exceed expectations, warranty expense may exceed the accrual for that particular product. Conversely, there is the possibility that claims may be lower than estimates. The warranty accrual is periodically reviewed and updated based on warranty trends. However, as we cannot predict future claims, the potential exists for the difference in any one reporting period to be material.

Environmental costs - At times we may be involved in various proceedings related to environmental matters. We estimate future costs for known environmental remediation requirements and accrue for them when it is probable that we have incurred a liability and the related costs can be reasonably estimated based on currently available information. Adjustments to these liabilities are made when additional information becomes available that affects the estimated costs to study or remediate any environmental issues or when expenditures for which reserves are established are made.

Judgments used in determining if a liability is estimable are subjective and based on known facts and our historic experience. If further developments in or resolution of an environmental matter result in facts and circumstances that differ from those assumptions used to develop these reserves, the accrual for environmental remediation could be materially understated or overstated. Due to the uncertain nature of environmental matters, there can be no assurance that we will not become involved in future litigation or other proceedings or, if we were found to be responsible or liable in any litigation or proceeding, that such costs would not be material to us.

46


 

Goodwill - In accordance with Accounting Standards Codification (ASC) Topic 350, Intangibles–Goodwill and Other (ASC 350), the Company evaluates goodwill for possible impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses a two-step process to assess the realizability of goodwill. The first step is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required. If a qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will proceed to the quantitative second step where the fair value of a reporting unit is calculated based on weighted income and market-based approaches.

 

If the fair value of a reporting unit is lower than its carrying value, an impairment to goodwill is recorded, not to exceed the carrying amount of goodwill in the reporting unit. We performed our annual goodwill impairment test during the third quarter of 20212022 and concluded that goodwill for all reporting units was not impaired.

As of November 30, 2021,May 31, 2022, our goodwill balance was $130.3$128.7 million of which $87.4$85.7 million related to our Manufacturing segment and $42.9$43.0 million related to our Maintenance Services segment. Our Manufacturing segment includes the North America Manufacturing reporting unit with a goodwill balance of $56.6 million; and the Europe Manufacturing reporting unit with a goodwill balance of $30.8$29.1 million.

 

Pursuant to the authoritative guidance, we make certain judgments and assumptions to determine our reporting units, which determines the carrying values for each reporting unit. Judgments related to qualitative factors include changes in economic considerations, market and industry trends, business strategy, cost factors, and financial performance, among others, to determine if there are indicators of a significant decline in the fair value of a particular reporting unit.

3647


Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risk

We have global operations that conduct business in their local currencies as well as other currencies. To mitigate the exposure to transactions denominated in currencies other than the functional currency of each entity, we enter into foreign currency forward exchange contracts to protect revenue or margin on a portion of forecasted foreign currency sales and expenses. At November 30, 2021May 31, 2022 exchange rates, notional amounts of forward exchange contracts for the purchase of Polish Zlotys and the sale of Euros; and the purchase of Mexican Pesos and the sale of U.S. Dollars aggregated to $120.9$100.3 million. Because of the variety of currencies in which purchases and sales are transacted and the interaction between currency rates, it is not possible to predict the impact of a movement in a single foreign currency exchange rate would have on future operating results.

 

In addition to exposure to transaction gains or losses, we are also exposed to foreign currency exchange risk related to the net asset position of our foreign subsidiaries. At November 30, 2021,May 31, 2022, net assets of foreign subsidiaries aggregated $373.1$203.4 million and a 10% strengthening of the U.S. Dollar relative to the foreign currencies would result in a decrease in equity of $37.3$20.4 million, or 2.7%1.4% of Total equity - Greenbrier. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. Dollar.

Interest Rate Risk

We have managed a portion of our variable rate debt with interest rate swap agreements, effectively converting $234.4$408.2 million of variable rate debt to fixed rate debt. Notwithstanding these interest rate swap agreements, we are still exposed to interest rate risk relating to our revolving debt and a portion of term debt, which are at variable rates. At November 30, 2021, 46%May 31, 2022, 77% of our outstanding debt had fixed rates and 54%23% had variable rates. At November 30, 2021,May 31, 2022, a uniform 10% increase in variable interest rates would result in approximately $0.8 million of additional annual interest expense.

37


Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Principal Executive Officer and Principal Financial and Accounting Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the Exchange Act). Based on that evaluation, our Principal Executive Officer and Principal Financial and Accounting Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial and Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended November 30, 2021May 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

3848


PART II. OTHER INFORMATION

There is hereby incorporated by reference the information disclosed in Note 1415 to Consolidated Financial Statements, Part I of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

This Form 10-Q should be read in conjunction with Part I Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, 2021.2021 and our subsequent Quarterly Reports on Form 10-Q. Except as set forth below, there have been no material changes in the Risk Factors described in our most recent Annual Report on Form 10-K.10-K and subsequent Quarterly Reports on Form 10-Q.

The COVID-19 coronavirus pandemic, and

Inflation in the related volatility in global economic activity, as well as governmental reaction to the pandemiceconomy could continue to negatively impact our business liquidity and financial position, results of operations, stock price, and ability to convert backlog to revenue.

We currently identify the following factors as the most significant risks to our business due to COVID-19, governmental actions, and economic conditions.

We may be prevented from operating our manufacturing facilities, maintenance shops, wheel shops or other worksites due to the illness of our employees, “stay-at-home” regulations, and employee reluctance to appear for work for many different reasons including the implementation of any government-imposed vaccination or testing mandates. Extended closure of one or more of our large facilities or a material decrease in our available workforce could have a material negative impact on our financial position and results of operations. Labor shortages

General inflation in the United States, Europe and other geographies where we operate could prevent us from converting backloghas risen to revenue.

levels not experienced in recent decades. General inflation, including wage inflation, currency volatilityrising prices for energy, metals, components, and other inputs as well as monetary, fiscal and policy interventions by national or regional governments in anticipation of our reaction to such events, including increases in interest rates, could have negative impacts onrising wages negatively impact our business by increasing our operating costs andcosts. General inflation also negatively impacts our borrowing costs as well asbusiness by decreasing the capital available for our customers to deploy to purchase our goods and services.
Mismatch of supply and demand, interruptions of supply lines, inefficient or overloaded logistics platforms, among other factors Inflation may cause the markets for the inputsour customers to our business to fail to operate effectivelyreduce or efficiently (including sectoral price inflation). There is no guarantee that we will be able to absorb fully such additional costs in the pricesdelay orders for our goods and services. Additionally, the capital available for our customers to purchaseservices thereby causing a decrease in sales of our goods and servicesservices.

Increases in the price of materials and components used in the production of ourproducts could negatively impact our profit margin on the sale of our products.

A significant portion of our business depends on the adequate supply of numerous specialty and other parts and components at cost effective prices such as brakes, wheels, side frames, bolsters, and bearings for the railcar business. Our manufacturing operations depend on our ability to obtain timely deliveries of materials in acceptable quantities and quality from our suppliers. Prices for materials may continue to increase due to the armed conflict in Ukraine, and trends in the global economy, among other reasons. Although a portion of the costs we must incur to meet our contractual obligations are subject to escalation clauses which allow us to pass through costs to our customers, we will absorb some cost increases thereby decreasing margin on some of our customer contracts.

Monetary and other policy interventions by governments and central banks, including the increase of interest rates, as well as uncertainly about governmental macroeconomic policies, could negatively impact our business and results of operations.

The United States Federal Reserve raised its benchmark interest rate by three-quarters of a percentage point in June 2022. Several other central banks, including the European Central Bank, have signaled increases in benchmark interest rates. Rising interest rates increases our borrowing costs potentially decreasing our profitability. Additionally, increased borrowing costs faced by our customers could result in decreased demand for our products. Monetary interventions also risk a sustained decline in aggregate demand, either globally or within one more geographic market. A decline in demand for our products would most likely have a negative impact on our business and results of operations.

49


Our business may be decreased by such events.

negatively impacted as a result of armed conflict in Ukraine.

The

In February 2022, the Russian Federation commenced a military invasion of Ukraine. We cannot predict the full impact of the armed conflict in Ukraine, the economic sanctions imposed on Russia, and the related economic and geopolitical instability, including instability in the manufacturing and freight rail markets. Some of our operations, particularly in Europe, have experienced higher energy costs, an increase in the price and availability of onesteel and certain other materials and components, disruptions in transportation and supply chains, higher manufacturing and borrowing costs. There is a risk we will not be successful in renegotiating existing agreements to allow us to pass through these increased prices of manufacturing. As a result of these impacts and due to the lack of new railcar orders in Europe during the third quarter of 2022, we have slowed down production at our European manufacturing facilities. These negative factors may continue to occur along with other risks to our business that may emerge which include, among others, prolonged heightened inflation, macroeconomic interventions in response to inflation, cyber disruptions or moreattacks, and disruptions in credit markets. All of these factors and others could disrupt our business directly and could disrupt the business of our customers may bethereby reducing or delaying orders of our goods and services. Prolonged civil unrest, political instability or uncertainty, military activities, or broad-based sanctions could have an adverse effect on our operations and business outlook.

Disruptions in the supply of materials and components used in the production of ourproducts could negatively impact our business and results of operations.

Supply chains were severely disrupted or cease, thereby increasingby the likelihoodCOVID-19 global pandemic. Armed conflict in Ukraine has also severely disrupted supply chains for the materials and components that we use in manufacturing our customers may attempt to delay, defer or cancel orders, reduce ordersproducts. Certain materials for our products are currently available from a limited number of suppliers and, servicesas a result, we may have limited control over pricing, availability, and delivery schedules. The inability to purchase a sufficient quantity of materials on a timely basis could create disruptions in our production and result in delays while we attempt to engage alternative suppliers. Any such disruption or conditions could harm our business and adversely impact our results of operations.

A material disruption in the future or cease to operate as going concerns.

The operationsmovement of our suppliers may be disrupted and the markets for the inputs to our business may not operate effectively or efficiently, thereby negatively impactingrail traffic could impair our ability to purchase inputs fordeliver railcars and other products to our business at reasonable prices,customers in a timely manner which could prevent us from meeting customer demand, reduce our sales, and negatively impact our results of operations.

Once a railcar or other product is manufactured in sufficient amounts.

Our indebtedness may increase due to our need to increase borrowing to fund operations during a period of reduced revenue.
The market priceone of our common stock may dropplants, it must be moved by rail to a customer delivery point. In many cases, the manufacturing plant and the delivery point are in different countries. Many different and unrelated factors could cause a delay in our ability to move our goods in a timely manner from the manufacturing plant to the delivery point including physical disruptions such as natural disasters and power outages, labor stoppages or remain volatile.
We may incur significant employee health care costs under our self-insurance programs.

The longershortages hindering the pandemic continues,operation of railroads and related transportation infrastructure, regulatory and bureaucratic inefficiency and unresponsiveness, and other causes. A material disruption in the more likely that moremovement of the foregoing risks will be realized and that other negative impacts onrail traffic could negatively impact our business will occur, someand results of which we cannot now foresee.operations.

39


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Board of Directors has authorized the Company to repurchase shares of the Company’s common stock. The share repurchase program has an expiration date of January 31, 2023. The amount remaining for repurchase was $100.0 million as of November 30, 2021.May 31, 2022. There were no share repurchases during the three months ended November 30, 2021May 31, 2022 under this program.

50


Item 6. Exhibits

(a)
List of Exhibits:

3.1

Amended and Restated Bylaws of the Registrant dated March 28, 2022.

10.1

Amended and Restated Third Amendment to the Amended and Restated Employment Agreement between the Registrant and William A. Furman.

10.2

Amended and Restated Fifth Amendment to the Amended and Restated Employment Agreement between the Registrant and Alejandro Centurion.

31.1

Certification pursuant to Rule 13a – 14 (a).

31.2

Certification pursuant to Rule 13a – 14 (a).

32.1

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (Formatted as inline XBRL and contained in Exhibit 101).

4051


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

THE GREENBRIER COMPANIES, INC.

Date:

January 7,July 11, 2022

By:

/s/ Adrian J. Downes

Adrian J. Downes

Senior Vice President,

Chief Financial Officer and Chief Accounting Officer

(Principal Financial Officer and Principal Accounting Officer)

4152